Lower the price of a product

(See an example)
Selling price Benefit% £Benefit Production cost
£0.00 0.00% £0.00 £0.00

To raise the price, click here.

Calculation history
Selling price Benefit% £Benefit Production cost
£0.00 0.00% £0.00 £0.00
How to apply a discount to a product?

How to apply a discount to a product?

If you are an businessmen or entrepreneur, surely you had or will have to offer a discount to your customers for the purchase of a product or service, and you will have asked yourself questions such as: what is the correct procedure to make a discount and what formulas do I have to apply? How does this affect VAT? Do I have to remove the VAT first and then lower the price and add the VAT again?

In this article we will help you to solve it.

To begin, we will know the two types of discounts that are most used. The first of them is called commercial and is applied to cash purchases. They are known as invoice footing and at the time of posting the discount is not considered.

On the other hand, there is the conditional or financial discount that is offered to encourage the timely payment of the client. For example, if the consumer requests a product on credit, you offer him a 5% discount if he liquidates it before the expiration date. This discount does have implications when it is accounted for.

To better understand each concept, we will explain it with examples.

Commercial discount example:

A smartphone sales company wants to apply a 10% discount on a smartphone model for the Christmas season. The price of the cell phone is £1,000 British pound and the customer wants to know what the total value of the product is, removing the discount and adding the VAT.

The first step is to know the value of the discounted product:

Product value = £1,000

We apply the following: 10% divided by 100% = 0.20.

Then we do the subtraction

£1,000 (the value of the product) x 0.90 = £900 sterling. This is the discounted price: £900

Now we will add the VAT:

Total charged = £1,089

Therefore, the price that the customer will pay for the cell phone will be £1,089 sterling and the selling company, after charging the consumer, will declare £189 sterling to the Tax Agency.

Conditional discount example:

Using the previous example, another client decides to buy the same model of smartphone, but in this case, he will use his credit to pay it in 2 years. The 10% promotion will not apply to this consumer, but they have been offered a 5% discount if he pays before those 2 years. Next, we will know the total charge that was applied to him:

At the time of purchase, you are charged for VAT

Tax base = £1,000

The total cost of the equipment is £1,210 British pound and the VAT to be declared to the Tax Agency is £210 British pound.

Before the end of the term, the client returns to settle the entire amount of the cell phone, acquiring a 5% discount.

In this procedure, the discount is made on the price of the smartphone without VAT (£1,000) because it was previously declared.

Price without VAT = £1,000

The total discount is £50 British pound which will be returned to the customer. If we want to know how much he paid in total for the smartphone with VAT, we make the sum of both amounts:

Total price = £950 + £210 = £1,160

The payment at the end of the settlement of the cell phone was ££1,160 British Pound with VAT included.