diff --git a/uc_taxes.module b/uc_taxes.module
index fab79e1..cf8edd4 100644
--- a/uc_taxes.module
+++ b/uc_taxes.module
@@ -557,7 +557,13 @@ function uc_taxes_apply_tax($order, $tax) {
       $taxable_amount += $other_tax->amount;
     }
   }
-  $amount = $taxable_amount * $tax->rate;
+  //$taxable_amount is inclusive of VAT if uc_vat module installed and enabled (due to uc_price alter in uc_vat and as patch #898776-9 was applied to ubercart 6.x-2.6)
+  if (module_exists('uc_vat')) {   
+  	$amount = $taxable_amount - ($taxable_amount / (1 + $tax->rate));
+  }
+  else {  
+  	$amount = $taxable_amount * $tax->rate;
+  }
   if ($amount) {
     $line_item = (object)array(
       'id' => $tax->id,