Deducting VAT confusion.

chrisbur

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.

Have another read I did not say anything about £166.67 I actually said "VAT is only £200 to get back to the £200 correct VAT figure you need the 16.67% percent." 16.67% of £1200 is the £200 VAT (give or take a few pence)

antrobus

JS477 wrote: »

Funny how some legal definitions are so counter-intuitive.

VAT works in the same way that every other sales tax does across the world. The rate quoted is the rate that you charge.

JS477 wrote: »

...I'm off for a lie down.

If A times 20% is B, and A plus B is C. Then B divided by C is 16.67%.

That's arithemtic. If you don't understand that then a lie down probably won't help.

I'd suggest something along these lines.
https://www.gov.uk/improve-english-maths-it-skills

googler

JS477 wrote: »

Official way £1000/1.2 = £833.33

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

You've applied 20% to the VAT inclusive price as a deduction, whereas it should be applied to the VAT exclusive price as an addition.

You can prove your other way to be wrong by trying to add the 20% VAT on again.

800 * 1.20 = 960, which is not equal to your original VAT inclusive price, thus proving your other way to be wrong.

Multiply 833.33 by 1.20, and ....

googler

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.

Yes. Original price (say) £1000, add £200 to give £1200

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.

No. If orig cost is £1000, you add £200 to give VAT-inclusive.

Where you're going wrong is expecting to take that same £200 off a VAT-inclusive price of £1000, but the 20% that you're taking off for this price must be different, because the VAT-exclusive price will be different.

Does this help?

TheCyclingProgrammer

Some very basic maths fail here. It's very simple.

VAT = net price multiplied by 0.2, therefore...
VAT inclusive price = net price multiplied by 1.2

The inverse of multiplication is division so to get back from the gross to the net you divide by 1.2.

TheCyclingProgrammer

JS477 wrote: »

Funny how some legal definitions are so counter-intuitive.

This has got nothing to do with legal definitions. It's pre-GCSE level basic maths!

I'm sorry if you find this condescending but as booksurr said, basic maths doesn't appear to be your strong point.

If it helps stop thinking about percentages and just think about the basic arithmetic involved.

Expressed as a fraction, if VAT is 1/5 (20%) of the original price then the VAT inclusive price is 6/5 of the original price. Therefore the VAT element is 1/6 and the net cost 5/6 of the gross.

Personally I think it's simpler to think of it terms of decimals and basic multiplication and division.

jimmo

If you are suffering a blind spot over percentages perhaps using fractions instead will help.
If something costs £1,000 plus VAT at 1/5th you will add on 1/5th of £1000 (£200) and pay £1200.
If you then reclaim the VAT you want your £200 back.
That is 1/6th of the £1200, VAT inclusive price, you paid in the first place.

googler

Or, another approach

Basic price excluding VAT = £10
Add VAT at 20% (1/5th of the price) = 0.2*10 or 1/5th of 10 = £2

VAT-inclusive price = £12

Having added one-fifth of the base price onto it, you now have 6/5ths of the base price.

In order to deduct the VAT, you don't take one-fifth (20%) of that away. Only the fifth that you added on, which is now one-sixth of the VAT-inclusive price.

Helpful?

Pennywise

JS477 wrote: »

Funny how some legal definitions are so counter-intuitive.

It's just basic maths, nothing complicated or counter-intuitive.

If you have 2 cakes and buy 50% (1/2) more, (1), you end up with 3 cakes, but each cake is a third (33%) of your new total. If you take a half of your new total, you end up with 1 1/2 cakes.

Turning that into 20% -

Say you have 20 marbles. You need to add 20% or 1/5, which is 4 more, so now you have 24. So the extra 4 make up a smaller percentage/fraction of the new total, i.e. 1/6 or 16.67%, i.e. 4 into 24. So the difference is 4 into the original 20 which is 1/5 or 20% as opposed to the 4 into the new figure which is 1/6 or 16.67%.

VAT is added to the "net" figure, i.e. the 20 original marbles, i.e. 4.

kidmugsy

Oh come on, chaps, he's just teasing you.