Discounts on sales - help!

[MGSteve]

Hi,

I'm adding a discounts feature into an online shop product I've developed and I'm a little (well, rather a lot as it happens) confused about discounts and how they figure into VAT calculations.

I'll give you a brief overview of how the shop currently works.

Each product has a ex-vat price and a vat element stored against it, i.e. a product selling at £99 inc. vat would have 86.09 stored in the ex-vat field and 12.91 store in the VAT field.

When the shop totals the basket up, it adds all the ex-vat and vat fields together to get the subtotal and the VAT totals.

Ok, say there was a discount code added to the shop which gave a customer entering it a £10 discount.

Firstly, is this £10 inc or ex vat?

Does the £10 come off the subtotal (i.e. the total ex-vat price), if so, do I take anything off the VAT total? If I take anything off the VAT total, how does this then tally up with the VAT totals for the product lines? You'd have the situation where the vat elements in the product lines wouldn't total the vat total on the invoice.

Also, what happens if the product bought is ZERO rated for VAT?

I'm thinking you simply have the subtotal, vat total and then at that point simply deduct £10 from the grand total?..........

I had a quick look in Sage, but that was no help, you can only offer discounts against line items - the discount would be against the order, not any specific line - unless I simply applied any global discounts against the first line item in the order?

I hope someone can understand what I'm rambling on about!

Thanks in Advance.


Steve.

[MGSteve]

Can no-one help!?

[David Griffiths]

I've just popped in for a quick look, and certainly don't have time to read and answer the question.

I can point out that posting a question past midnight, and then expecting an answer by 8.30 is a tad optimistic

[MGSteve]

I can point out that posting a question past midnight, and then expecting an answer by 8.30 is a tad optimistic
Totally agree with you. However it was midnight yesterday, not today! I'm not that impatient! ;)

[wizzard]

Totally agree with you. However it was midnight yesterday, not today! I'm not that impatient! ;)

I was about to point that out, you beat me to it :D

[David Griffiths]

Totally agree with you. However it was midnight yesterday, not today! I'm not that impatient! ;)

:redface: Oops!

[TotallySport]

Are you selling in to the UK or overseas? and are you selling to the public or businesses?

[David Griffiths]

The £10 is effectively a reduction in selling price. It will be inclusive of VAT, so if you give the discount against standard rated items, then the net effect will be £8.70 plus VAT £1.30. If it goes against a zero rate item, then the discount will be zero rated.

Where it's given against a mixed basket, the VAT is apportioned in the ratio of the VAT inclusive prices before the discount. If the basket of £100 was £80 SR and £20 ZR, then £2 of the voucher is ZR, and the balance of £8 SR. Have a look at HMRC guidance on discounts and vouchers here (http://www.hmrc.gov.uk/vat/managing/charging/discounts-etc.htm#1)

That's the VAT side of things. How you get is sorted in Sage is a different matter, particularly if you want to automate it. What kind of zero rate items do you sell, and what proportion of turnover do they account for?

[MGSteve]

That's the VAT side of things. How you get is sorted in Sage is a different matter, particularly if you want to automate it. What kind of zero rate items do you sell, and what proportion of turnover do they account for?
Thanks for the reply David. Sage was only mentioned as I had a poke around it to see how Sage handled it - and found out it doesn't! (well, apart from a line by line basis).

One client of mine sells bike helmets and they're likely to be a reasonable percentage of sales, other clients sell books and they aren't going to be particularly high percentage.

The solution you mention is pretty much achievable within the software anyway, it just keeps track of the ex vat & vat element totals for each VAT band (i.e. SR and ZR) and then applies the VAT according to the percentage of the exvat values.

OK, that's explained badly.

Given this basket....

Engine Oil @ 4.34 + 0.65 (SR)
Go Faster Exhaust @ 52.17 + 7.82 (SR)
Helmet @ 249.99 + 0 (ZR)

Subtotal = £ 306.50
VAT = £ 8.47
Total = £314.97

Now, with a £10 discount, we'd work out the ratio of the tax breakdown
SR = (4.34 + 52.17) / (306.50) * 100 = 18.4%
ZR = 81.6%

So, would that mean that 18.4 of the £10 inc vat was allocated to the SR, which would equate to a discount of 1.60 from the ex vat & 24p from the SR band and then the rest of the £10 (£ 8.16) is allocated to the ZR band, with 0 tax deducted.

Leading to ...
Subtotal = £306.50 - 9.76 (the £1.60 from the SR band and £8.16 from the ZR band)
Vat = £ 8.47 - 0.24 (vat element from the SR band)
Total = 304.97

Wow, that much maths at twenty to one in the morning! lol

[MGSteve]

Are you selling in to the UK or overseas? and are you selling to the public or businesses?

both and both! ;)

Some clients sell domestically, some internationally. Obviously discounts on foreign orders will only attract VAT if the order attracts vat anyway.

[David Griffiths]

I think that the correct approach is slightly different. What you are doing is allocating the gross £10 discount in the proportions of the net selling prices - that's not (for me) comparing like with like.

The gross selling price in that basket is £64.98 standard and £249.99 zero. The standard rated element is 20.63% of the basket.

I'd apply that percentage to the gross £10, so £2.06 of the voucher is standard rated, including 27p VAT.

OK, that's only 3p more than your example, but it is more, and over lots of vouchers (many of which will have a higher standard rate proportion) that could well add up.

[MGSteve]

The gross selling price in that basket is £64.98 standard and £249.99 zero. The standard rated element is 20.63% of the basket.

I'd apply that percentage to the gross £10, so £2.06 of the voucher is standard rated, including 27p VAT.

Ah, right - ok, so base the %age split on the inc vat total for each VAT band, otherwise its pretty much spot on?