Deducting VAT confusion.

JS477

Why is it that when you come to deduct VAT from a product you divide the price by 1.2 rather than just take 20% of the price off the (VAT including) price.

E.g Cost including VAT £1000

Official way £1000/1.2 = £833.33

Other way. 20% x £1000 = £200. Therefore VAT free is £1000 -£200 = £800.
:question:

molerat

VAT is added to an item value at 20% so makes up 16.67% of the vat inclusive price.

JS477

molerat wrote: »

VAT is added to an item value at 20% so makes up 16.67% of the vat inclusive price.

Sorry to appear thick but could you expand on that?

antrobus

JS477 wrote: »

Why is it that when you come to deduct VAT from a product you divide the price by 1.2 rather than just take 20% of the price off the (VAT including) price.

E.g Cost including VAT £1000

Official way £1000/1.2 = £833.33

Other way. 20% x £1000 = £200. Therefore VAT free is £1000 -£200 = £800.
:question:

Because VAT is calculated on the price before VAT. £833.33 times 20% is £166.67.

Or look at it this way. Price of goods £1000, VAT is 20%, thus the VAT inclusive price is £1200.

£200 is 20% of the VAT exclusive price of £1,000, but only 16.67% of the VAT inclusive price of £1,200.

JS477

Thanks for the info but it must be me it's just not computing.

I just cannot see why that if VAT is 20%, therefore you add 20% of the original price to the original price to get the price plus 20% VAT.

So if something that originally (no VAT)costs £1000 the VAT added is not £200 and likewise if the price of something including VAT is £1000 then the cost excluding VAT is £800.

I ask because a colleague is entitled to VAT free products and like me he's confused as to why you just can't take 20% of the VAT price off the ticket price. He thinks (maybe rightly) that he's not getting 20% off the Price (inc. VAT)

Thanks anyway.

antrobus

JS477 wrote: »

...I just cannot see why that if VAT is 20%, therefore you add 20% of the original price to the original price to get the price plus 20% VAT.....

Because that is how it is defined in law.

You are just having to get used to it.:)

chrisbur

If the VAT exclusive price is £1000 then 20% VAT on that is £200 to give a VAT inclusive price of £1200. If you then take the £1200 vat inclusive and work out 20% you get £240 but the VAT is only £200 to get back to the £200 correct VAT figure you need the 16.67% percent.

JS477

antrobus wrote: »

Because that is how it is defined in law.

You are just having to get used to it.:)

Funny how some legal definitions are so counter-intuitive.

JS477

chrisbur wrote: »

If the VAT exclusive price is £1000 then 20% VAT on that is £200 to give a VAT inclusive price of £1200. If you then take the £1200 vat inclusive and work out 20% you get £240 but the VAT is only £200 to get back to the £200 correct VAT figure you need the 16.67% percent.

So, if a trader gets a product in costing £1000 and adds VAT at 20% onto it he puts it up for sale at £1200.

Along comes someone who is allowed this product VAT free but he doesn't get the £200 knocked off he gets £166.67 off so has to pay £1033.33 rather than the original £1000!!!


I'm off for a lie down.

booksurr

JS477 wrote: »

So, if a trader gets a product in costing £1000 and adds VAT at 20% onto it he puts it up for sale at £1200.

Along comes someone who is allowed this product VAT free but he doesn't get the £200 knocked off he gets £166.67 off so has to pay £1033.33 rather than the original £1000!!!

I'm off for a lie down.

what you are failing to grasp is that £1,200 = 120%, ie base cost + 20%,. VAT is an ADDITION to the base price, the base is 100%, VAT is 20%^ so the gross selling price is 100% + 20% = 120%

so to work out how much to reclaim (ie the 20% VAT) of that figure you divide by 120 to get how much 1% of that start point is and then you multiply by 20 to get how much 20% of it is
1200/120 = 10
10 x 20 = 200

of course you never work it out in such a long winded way as maths teaches you that 120/20 = 6 so 1200/6 = 200

JS477

booksurr wrote: »

rubbish, of course he can reclaim £200. Obviously basic maths not your strong point.

Wow I never thought I was in the presence of such "human" perfection.
:rotfl:

Thanks to the rest of you who didn't descend into the usual pompus condescension you get from people like booksurr who think they're clever but in the end are as ignorant of the subject matter as you are.