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Forums › ACCA Forums › ACCA TX Taxation Forums › Why is 17.5% and 7/47 sometimes used to calculate output VAT? need some tips on the VAT fraction
This is an answer from the BPP revison kit, which I don’t really understand why.
Sales to registered customers
($44,000*95%)=$41,800*17.5%
Sales to non VAT registered customers
($16,920-5170)=$11,750*7/47
Payment on account
$6000*7/47
I understand the percentages, it is the VAT fraction I’m a bit confused by.
Hi
17.5% is the VAT you must add to a sale amount for example:
Sale £100
VAT @ 17.5% = 100 x 17.5% = 17.50
Total selling price = 100 + 17.50 = 117.50
If instead you were only given the £117.50 (ie gross total rather than net)and had to work out the VAT this is where you would use the VAT fraction to get the VAT element.
For £100 you know that there will be an additional 17.50 VAT
so 17.50/117.50 = 7/47 this is how the VAT fraction is calculated.
This can then be used for any amount, for example:
For a sale of £450 gross, what is the VAT element:
450 x 7/47 = £67.02
In summary 17.5% should be used on the NET cost to find the VAT whereas 7/47 should be used on the GROSS cost to find the VAT element.
Thanks Sarah, that makes a bit more sense.
On the example then, why is the NET needed?
What are the VAT fractions then for different VAT rates? When VAT is 15% and when it will be 20%?
I haven’t seen the question so can’t really see which numbers have been used to explain why. Can you post the relevant bits of the question and i might be able to help?
The NET would be used where this is available (then multiply by 17.5%), if the NET is not available (this might not be split out for non-VAT registered customers) then you would have to use the GROSS (and multiply by 7/47).
The VAT fractions for different rates:
15% 15/115 = 3/23
20% 20/120 = 1/6
Sarah