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How much is my product plus vat?

Discussion in 'Accounts & Finance' started by WHARTY, Sep 25, 2010.

  1. WHARTY

    WHARTY UKBF Contributor Free Member

    Posts: 793 Likes: 115
    Ok bit of a thick question i think.

    I never used to be VAT registered but now that i am i have to obviously charge VAT.

    My product sells for £4 inc VAT. I assumed that the VAT on the product is 17.5% of £4.00. I worked this out at 70p. I assumed my product was then £3.30+VAT ? but when i do the calculation backwards thinking that 17.5% of £3.30 is £4 i get something like 57p? which is 13p short?

    Can somebody give me a calculation that i can use to get this right?

    Thanks

    Lee
  2. Stretchy

    Stretchy UKBF Contributor Full Member

    Posts: 4,455 Likes: 1,401
    £3.40 ex vat.

    Divide inc vat by 1.175
    Last edited: Sep 25, 2010
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  3. WHARTY

    WHARTY UKBF Contributor Free Member

    Posts: 793 Likes: 115
    Wher does the 1.175 come from
  4. Stretchy

    Stretchy UKBF Contributor Full Member

    Posts: 4,455 Likes: 1,401

    If you have the ex vat, you times by 1.175 to add the vat.

    Simple maths tells you that if you want to reverse the calculation you just divide rather than times.

    Where you were going wrong was working out 17.5% of £4. The percentage is calculated on the ex vat not inc vat figure.

    Trust me, i'm damn clever.:D
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  5. MBS Accountants

    MBS Accountants UKBF Newcomer Free Member

    Posts: 55 Likes: 15
    You take your normal price (100%) and add 17.5% VAT. This gives you your price including VAT (117.5%).

    To work backwards from your VAT inclusive price of £4 (117.5%) you need to divide by 117.5 and multiply by 100 (or divide by 1.175 as pointed out)

    This gives you a excluding VAT price of £3.40 and VAT of 60p.

    Hope this helps in explaining it?
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  6. David Griffiths

    David Griffiths UKBF Regular Moderator

    Posts: 9,955 Likes: 3,160
    HMRC refer to the VAT fraction when working out the amount of VAT included in a gross figure. At a rate of 17.5% the VAT fraction is 3/23 - that comes from 17.5 / (100 + 17.5) cancelled down.

    When VAT hits 20% in the new year the VAT fraction will be 1/6 (20 / (100 + 20)
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  7. WHARTY

    WHARTY UKBF Contributor Free Member

    Posts: 793 Likes: 115
    Ok i am still confused. I admit i am crap at maths.

    I need the actual calculation written in front of me without being told the answer or reading between the lines. I still don't know where the £3.40 came from. Before i went VAT registered my product was £4 so it would be easy if it was plus vat, but working out the inc VAT knowing the final selling price (£4) is what i can't get my head round.

    Please teach me to suck eggs :D and write me the calculation.
  8. WHARTY

    WHARTY UKBF Contributor Free Member

    Posts: 793 Likes: 115
    Cheers wrote that last reply while you guys were replying!

    Thanks very much.
  9. Stretchy

    Stretchy UKBF Contributor Full Member

    Posts: 4,455 Likes: 1,401

    The £4 is 117.5 % of the ex vat amount. Does that make sense?

    Just saw your post above, glad you got it sorted.
    Last edited: Sep 25, 2010
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  10. wizzard

    wizzard UKBF Regular Free Member

    Posts: 648 Likes: 57
    No 15% is 3/23, 17.5% is 7/47.
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  11. WHARTY

    WHARTY UKBF Contributor Free Member

    Posts: 793 Likes: 115
    Thanks i didn't want to do my accountants head in on Monday making him explain it 3 million times. I am sure he hides when he sees me coming!:D
  12. WHARTY

    WHARTY UKBF Contributor Free Member

    Posts: 793 Likes: 115
    Couldn't help but laugh when i saw this, i am so glad i pay an accountant because that blew my head off! :D:D:|:redface:
  13. Stretchy

    Stretchy UKBF Contributor Full Member

    Posts: 4,455 Likes: 1,401

    Its very easy when you understand why the calculations, are why the way they are. Just not so easy when you dont understand why the figures work in some ways and not others.

    Accountants dont use any maths that most 14 year olds at school wouldn't laugh at.:)
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  14. akirk

    akirk UKBF Contributor Free Member

    Posts: 2,224 Likes: 575
    You can buy calculates with a vat button, put in the vat % once and then just press the button - easy, mine which cost about £8 does it either way, adds it or removes it...

    Alasdair
    Last edited: Sep 25, 2010
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  15. Stretchy

    Stretchy UKBF Contributor Full Member

    Posts: 4,455 Likes: 1,401
    Very true, but if the OP takes the time to understand it he will always know how to do it. Its an easy calculation, even in your head, once you understand how and why it works.:)
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  16. akirk

    akirk UKBF Contributor Free Member

    Posts: 2,224 Likes: 575
    I agree - and will be even easier at 20% ;)
    however not everyone finds figures easy!

    Just an alternative idea

    Alasdair
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  17. David Griffiths

    David Griffiths UKBF Regular Moderator

    Posts: 9,955 Likes: 3,160
    Oops! :redface:
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  18. David Griffiths

    David Griffiths UKBF Regular Moderator

    Posts: 9,955 Likes: 3,160
    I've always said that accountancy is more about sums than about maths!
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  19. Stretchy

    Stretchy UKBF Contributor Full Member

    Posts: 4,455 Likes: 1,401
    Exactly, the actual maths used by accountants is very, very simple. Knowing what to do with the maths, and knowing what you are, and are not allowed to do, thats where you earn your money.
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  20. WHARTY

    WHARTY UKBF Contributor Free Member

    Posts: 793 Likes: 115
    Thanks, it would have been easy for you all to take the mick and you didn't so thanks. And thanks to Stretchy who has sent a few pm's to make sure i understand it.

    Cheers

    Lee
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