How to Calculate and Deduct the New VAT Rates

The VAT rate in the UK has been reduced, temporarily, in an attempt by the UK government to stimulate the economy and get people spending. Whether or not this will work remains to be seen. However, implementing the change can be tricky – invoices have to be amended, spreadsheets and databases need to be changed, and things can get complicated!

Some people prefer to use the ‘fraction’ to work out VAT. When the VAT rate was 17.5% the fraction was 7/47. Now, the fraction needed is 3/23. This means that the total (VAT inclusive) price is 23 23rds, the VAT amount is 3 23rds, and the NETT price is 20 23rds.

• To add VAT at 15% on to a sale- multiply by 1.15 – Example £50.00 + VAT = £57.50. Alternative, divide by 20 and multiply by 23.
• To calculate how much the VAT will be on a sale, multiply by 0.15 – Example VAT on £50.00 = £7.50. Alternative, divide by 20, multiply by 3.
• To work out the NETT price (price excluding VAT) DIVIDE by 1.15 – Example £57.50 less VAT = £50.00.Or, use the fraction – divide by 23 then multiply by 20
• To work out the amount of VAT on a VAT inclusive price, it is much easier to use the fraction – divide by 23 then multiply by 3. Otherwise, divide by 7.667 to get the VAT amount.

If you’re interested, 115/15 = 7.6666 etc.

Finally – if the product already has 17.5% VAT added and you want to sell it with 15% VAT – here’s what to do.

• Work out the NETT price by using the old fraction 7/47 – Example £117.50 divided by 47, multiplied by 40 = £100
• Add the new VAT using the new fraction 3/23, Example £100 divided by 20, multiplied by 23 = £115.00

Or – multiply by 0.97872 – Example £117.50 * 0.97872 = £114.9996 (ok, you need to round up!)

This will be very basic to a lot of people – my apologies if I’m stating the obvious. The number of invoices we have received in the last couple of weeks with the wrong amounts on (and the time we spent in the office trying to figure it out) indicate that some people need reminding of the basics!

Hopefully this will help – Good luck with your calculations!

Remember that the 15% VAT rate is applicable until the end of December 2009 – so in 13 months we can change it all back again!