Here is a practical example of how to calculate the VAT
percentage by applying some formulas:
The final consumer: Walt
Tom makes 1 kg of cheese and wants to sell it for 2.72 pounds. In
addition to the sale price, Jerry must also pay a percentage of
this price. In this case, if the general VAT is 20%
Tom will have to charge Jerry £3.26 for the cheese.
Glossary: Taxable base
The price without VAT of 2.72 pounds, in this case, is the
tax base on which the percentage of VAT required can be
added, depending on the type of good or product.
VAT amount = tax base *
VAT% = £2.72 * 0.20 = £0.54
VAT total amount = £2.72 + £0.54 =
lwhich is the price with VAT.
It is easier to calculate VAT with a
as 1+ the VAT percentage, in this case 1 + 0.20 = 1.20 and
we multiply the tax base, 2.72 pounds. That calculation is
faster and is the same result.
VAT total amount = £2.72 * 1.20 = 3.26 pounds
How to remove 20% VAT from a total amount?
If Tom sells cheese for £3.26 to Jerry, how do we
know how much is the VAT and the tax base?
£3.26 (total price) = X (tax base) *
X = £3.26 / 1.20 = £2.72 (tax base)
VAT amount = £3.26 - £2.72 = £0.54
We return to the previous example:
Tom sells cheese to Jerry for £3.26, Jerry
is going to sell it at his store for £5.60 (total price) and
Walt wants to buy it.
£5.60 (total price) = Y (tax base) *
Y = £5.60 / 1.20 = 4.67 pounds
VAT amount = £5.60 - £4.67 = £0.93
|Company / Consumer
||VAT Charged -
||= VAT to register
*Tom & Jerry are commercial entities. For this, the
VAT is what they will have to enter into the HM
Revenue & Customs.
** Walt is the end consumer. It would be too difficult for the Tax
Agency to collect information on the VAT for each
individual, so he does not pay anything to HM Revenue &
Customs. Instead, he pays it to the most recent seller, Jerry.
Therefore, HM Revenue & Customs collects the final VAT
paid by Walt of £0.93, collecting £0.54 from
Tom and £0.39 from Jerry for his returns, which can
be quarterly or monthly.