I've just been reading how BT calculate the VAT on customers' payments (info inside back pages) and notice that they are making about £3.06 on every £100 you pay: "If you pay £30, £24.75 will be creditted to your account after VAT has been deducted." Any fule know £30 inc.VAT is £25.53 ex.VAT.
They have clearly been pulling the wool over the customers' eyes for some time with this one. I wonder if the taxman knows about it, or the shareholders, or Oftel for that matter. I'm glad I'm not a customer and never will be until I get my cut of the selloff of my utility.. which aint gonna happen.
Tax is normally calculated at the appropriate percentage of a price that has first been decided without VAT, and the VAT invoice will show these separate amounts. However, sometimes VAT has to be calculated from a price in which it is already included (for example, in the less detailed VAT invoices described in paragraph 16.6.1). To do this, you need the VAT fraction.
If you sell something at £2.35
And the VAT rate is 17.5%
Then the amount of VAT is £0.35
However, £0.35 is not 17.5% of £2.35. It is 7/47 of £2.35.
This is how it is worked out:
Rate of tax (divided by) 100 + rate of tax
So, with VAT at 17.5% the VAT fraction is: 17.5(over)117.5 (i.e., 17.5/117.5) which equals 7(over)47 (i.e., 7/47).
It has me confused but I hope that it sheds some light on things.