Tuesday, January 04, 2011

The VAT rise

How much is the VAT rise?

Well it's rising from 17.5% to 20% so 2.5% (20-17.5)
Well it's rising from 17.5% to 20% so 14.2% ((20/17.5)*100-100)
Well the price of of a net £100 product is rising from £117.50 to £120 so 2.1% ((120/117.5)*100-100)

the fun of statistics.

Oh and as an aside we've received nothing (not one jot) from HMRC to remind us of the increase. Last time we had letters and stickers; this time nothing.

[ Update - my two non-obvious percentages were queried by someone last night so I'll rephrase and expand them here.

If I sell 57 products that are £10 net with VAT at 17.5% the amount I would need to pay to the government would be £1.75*57 = £99.75 call it an even £100 to make life easier. Selling the same number of products with VAT at 20% the amount I need to hand over would be £2*57 or £114 exactly.

To get to £114 from £100 I need to add £14; that is I need to add £14 for every £100 I originally handed over which is what 14% means. So the amount the government is receiving in tax has increased by 14% assuming that the same amount of products at the same net price are sold.

So this time with a £100 net product I sell it to you at £117.50 and I should now be selling it to you at £120.00 an increase of £2.50 per hundred or 2.5%. So where does my figure of 2.1% come from? Well that only works if you start from the net price.

If I just see the price of a product at £117.50 and I add the 2.5% to it that's 2.5% of £117.50 which is £2.94 making a total of £120.44 or 44p more expensive than it should be. So that's 2.5% added to the net price, but 2.1% to the price we actually see. So if you picked up something at £100 and today it's £102.50 'because of the VAT increase' you're getting charged roughly 40p more than you should.]