When we talk about the application of VAT, we are referring to a method of calculating the tax that is added to the price of goods or services. This involves taking into account any previous taxes that may have been charged at different stages of production. By deducting these previous taxes, we can arrive at the final amount of VAT that is to be added to the invoice. This method is commonly used in the finance world and plays a crucial role in determining the overall cost of goods and services.