How To Calculate VAT


Let’s admit it, we all hate VAT! Especially when you’re going to buy something that costs a lot and you know you could be getting it cheaper if it wasn’t for VAT. But we have no choice but to pay it…sigh. But what is VAT?

 How To Calculate VAT

It stands for Value Added Tax and is charged upon most business transactions in the UK. That includes businesses selling items to other businesses and businesses selling to members of the public like you and me.

The VAT rate is fluctuating all the time and is usually dependent on the state of the economy. The rate at the time of writing is 20%. In order to check the latest VAT rate visit the HM Revenue & Customs site:

http://www.hmrc.gov.uk/vat/index.htm

In order to calculate the VAT on a particular price requires simple maths. For a general tutorial on how to calculate percentages, visit:

http://www.how4now.com/2012/02/how-to-work-out-percentages.html

Ok so let’s use the current VAT rate and use it as an example to calculate VAT on a particular item. Now the easiest way for me to calculate 20% is divide the price by 10 and then multiply it by 2. This will give me the extra 20% I will be paying on top.

Note: Most prices given for items by businesses and retailers already include VAT!

Now let’s use a stereo as an example. It costs £200 excluding VAT. So:

Step 1: Divide by 10 to give 10%

£200 ÷ 10 = £20

Step 2: Multiply answer by 2 to get 20%

£20 x 2 = £40

So the tax we would pay on this stereo would be £40. It’s that easy to calculate!

If the tax rate has changed, then I would recommend using the tutorial given above to calculate prices with the new VAT.

Ok so that’s it. Thanks for visiting, hope it helped!

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