VAT Update

[Andrew-TNNG]

Hi there,

We would like to increase our VAT from 14% to 15%.

How is this possible without affecting all of our products prices?

Thank you.

Andrew

[gws]

Well if you increase VAT it must increase prices,£100 + 14% = £114 / £100 +15% = £115 ?

[sozzled]

It's arithmetically impossible to increase the VAT on something that used a lower VAT rate beforehand and arrive at the same cost to the purchaser without first discounting the product unit price.

Assume that the unit cost of a product is p units (dollars, pounds, euros or whatever) and the cost to the consumer after adding 14% VAT is y, then for y to remain the same after "increasing" the VAT by 1%, p needs to be discounted. In this case, the discount factor is approximately .85%.

Another way of computing y (the cost to the purchaser) it to apply the formula

(p * .9915) * 1.15

That is, take p, reduce its cost by .85% and then add 15% VAT. The result is approximately correct (to within a couple of decimal places).

Example:
let p = 50 and VAT = 14%: 50 + 14% = 57 (therefore y = 57)
if VAT is 15% then p will need to be 49.575 (i.e. 50 * .9915). Therefore 49.575 + 15% = 57.01 (which is pretty close to the same y when VAT was 14%)