Coping With The Vat Rate Change - How To Calculate And Deduct The New Vat Rates
Adapted from an article by Tim C James
Although most companies are now up to date with the VAT rate change, there are still many occasional traders and people who freelance for a second income, like yours truly who are having to calculate new prices after the VAT rate change. Implementing the change can be tricky - invoices have to be amended, spreadsheets and databases need to be changed, and things can get complicated!
Traditionally, many people have used the fraction method to calculatge VAT. When the VAT rate was 17.5% the fraction was 7/47. Now, the VAT rate change means that the required fraction is 3/23. This means that the total (VAT inclusive) price is 23 23rds, the VAT amount is 3 23rds, and the NET price is 20 23rds.
The other method is to use decimals - this basically is exactly the same as using the fraction method, but eliminates the 'fraction' step. To add VAT at the new rate of 15% multiply by 1.15 - for example, if I am selling an item at £100 before VAT, VAT inclusive will be 100 * 1.15 = £115
To calculate how much the VAT will be on a sale, multiply by 0.15. For example, if I am selling an item for £100 again, the VAT is 100 * 0.15 = £15
To work out the NET price (price excluding VAT) DIVIDE by 1.15. For example, if I am selling an item for £115, then 115 / 1.15 = £100
As I said before, most companies have already dealt with the new rate of VAT. However, I hope this will be useful for many of the small business and occasional self-employed who are still trying to deal with the VAT Rate Change. The number of invoices we have received in the last couple of weeks with the wrong amounts on (and the time we spent in the office trying to figure it out) indicate that some people need reminding of the basics!
Hopefully this will help - Good luck with your calculations!
Remember that the 15% VAT rate is applicable until the end of December 2009 - so in 13 months we can change it all back again!
Original Article Source: http://EzineArticles.com/?expert=Tim_C_James http://EzineArticles.com/?How-to-Calculate-and-Deduct-the-New-VAT-Rates&id=1769498