How Do I Calculate the New 20% VAT?

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Value-added tax (VAT) in the United Kingdom was increased in early 2011. The standard rate was 17.5 percent for most of the 21st century until Her Majesty’s Revenue and Customs (HMRC) reduced it to 15 percent in the wake of the 2008 crash of the financial markets and the onset of the global financial crisis. The standard rate for goods and services in the UK is currently 20 percent.

Not all good and services are taxed at the standard VAT rate. Most grocery items are taxed at a rate of zero, and various services such as tickets to museums and home repair services for people who live with disabilities are exempt from VAT. Residential utility services such as heating oil and electricity are taxed at the reduced VAT rate of 5 percent, and the same goes for sales of solar energy panels. VAT is the third most significant source of revenue for the UK.

<strong>Calculating VAT</strong>

For the purpose of collecting VAT revenue in the UK, business owners must first register with HMRC. Prices for goods and services in the UK can be advertised inclusive or exclusive of VAT. In both cases, a VAT calculation must be performed. If the price tag affixed to goods is VAT-exclusive, a calculation to add the tax is needed. VAT-inclusive prices require a calculation for the purpose of keeping records on the amount of tax collected.

Figuring out VAT on a calculator requires a percentage multiplication as well as an addition. For example, if the VAT-exclusive price of a smartphone is £100, the VAT will be £20 since 100 times 20 percent is 20. The next step would be to add this amount to the price so that it becomes VAT-inclusive at point-of-sale. This means that shoppers will pay €120 for the smartphone.

Another way to calculate VAT is by multiplying the price by a number that consists of 1 followed by the appropriate rate as a decimal. For example, a pack of maternity pads that costs £10 should be taxed at the reduced rate. To find the VAT-inclusive price, £10 can be multiplied by 1.05. Goods and services taxed at the standard rate should be multiplied by 1.2.

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Author: Jay White

I started Dumb Little Man so great authors, writers and bloggers could share their life "hacks" and tips for success with everyone. I hope you find something you like!

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