I've spent days tearing my hair out and searching the web! Why? Simply because google checkout has little regard for UK VAT...
After much searching I reached the stage where I could display the line '(VAT included £0.00)' on the sandbox checkout page, but I couldn't change the amount!
The answer is simple. Complete the integration to the full checkout, and the number will be calculated... It appears they just couldn't be bothered to do the maths in the sandbox version!
So, if you're having trouble with Google Checkout and VAT, don't worry about it, just set up the proper account and go with it.
Here's the code I used:
<input type="hidden" name="checkout-flow-support.merchant-checkout-flow-support.shipping-methods.flat-rate-shipping-1.name" value="Courier">
<input type="hidden" name="checkout-flow-support.merchant-checkout-flow-support.shipping-methods.flat-rate-shipping-1.price" value="5">
<input type="hidden" name="checkout-flow-support.merchant-checkout-flow-support.shipping-methods.flat-rate-shipping-1.price.currency" value="GBP">
<input type="hidden" name="checkout-flow-support.merchant-checkout-flow-support.shipping-methods.flat-rate-shipping-1.shipping-restrictions.allowed-areas.postal-area-1.country-code" value="GB">
<input type="hidden" name="checkout-flow-support.merchant-checkout-flow-support.shipping-methods.flat-rate-shipping-1.shipping-restrictions.allowed-areas.postal-area-2.country-code" value="IE">
<input type="hidden" name="checkout-flow-support.merchant-checkout-flow-support.tax-tables.default-tax-table.tax-rules.default-tax-rule-1.rate" value="0.175">
<input type="hidden" name="checkout-flow-support.merchant-checkout-flow-support.tax-tables.default-tax-table.tax-rules.default-tax-rule-1.tax-area.postal-area.country-code" value="GB">
<input type="hidden" name="_charset_"/>http://checkout.google.com/support/sell/bin/answer.py?answer=71391
Hopefully this entry will appear in google soon to save people like myself going prematurely bald...
Dave