V.a.t. Reductions - Not!

perrym_2

Is it just me or are shops not passing on the full 2.5% reduction even though they display signs to give the impression that they are?

I've noticed a few shops today in Romford that have signs displayed that promote the fact they they have reduced prices by only charging 15% v.a.t instead of 17.5%.

Primark was one of those shops.........

They are displaying a sign with example reductions e.g.
pre reduction price £10 new price £9.79.

Surely this is a reduction of 2.5% (almost) of the full price including v.a.t. instead of a reduction of 2.5% v.a.t.? I have worked it out as follows and please correct me if I'm wrong!

£10 minus 17.5% v.a.t. = £8.25 add 15% v.a.t. = £9.48. That's a difference of £0.31p.

OK I now it doesn't sound a lot, but it would be if you were buying a large screen LCD television elsewhere!

andysstuff_2

No, the £10 includes VAT at 17.5% - Price is £8.51 plus VAT. That works out at 17.5% = £10.00 and at 15% £9.79. Therefore you were right it is just you and the new price is correct.

zenseeker

Is it just me or are they already a load of threads about this?

andysstuff_2

There are but it's easier explaining it again rather than looking for them!

PinkPig

This is down to a basic misunderstanding of percentages. If you add 17.5% then remove 17.5% of the total, you'll end up with less than you started with (since you're removing 17.5% of a larger amount).

Once you've added 17.5%, you actually need to divide by 1.175 to get the original figure. It works out as a reduction of about 15%. The result of this is that changing VAT from 17.5% to 15% results in a reduction of about 2.13%, not 2.5%.

Just to put some of your numbers into the example in case you still don't understand, if the item without VAT costs £8.25 (as you thought), then adding 17.5% would make it cost £9.69 including VAT. Since it actually originally cost £10, hopefully you can see your mistake.

tifo

or another way to get an ex-vat figure is the inc vat amount minus 14.89% ..

perrym_2

OMG! Thanks everyone! I can't believe i made that mistake. I can at last sleep well. lol.