VAT Problem! Can you solve it?

by **sssaaammm** on Sun Aug 29, 2010 6:46 am

X plc makes a mixed supply at a VAT-inclusive price of £160. The product costs show zero rated goods costing £30 and standard rated goods costing £50 (exclusive of VAT).

How much VAT is included in the total price of £160??

I'd be so grateful if you help me solve it.

by **RAL** on Mon Aug 30, 2010 10:36 am

Is it homework? If you are stuck then say so, we would be happy to help you.

by **sssaaammm** on Mon Aug 30, 2010 7:33 pm

Hi Ral! thanks for your offer.. no it's not homework.. this was one of my taxation exam questions i did last week but i've been so paranoid whether i got it right.. and i've been calculating my marks since then..

it would be great if you break it down for me.. i think my lecturer will mark the answers according to the way i did it not the final answer as i don't think i got it right :roll:

by **Generix** on Tue Aug 31, 2010 9:58 am

sssaaammm wrote:X plc makes a mixed supply at a VAT-inclusive price of £160. The product costs show zero rated goods costing £30 and standard rated goods costing £50 (exclusive of VAT).

How much VAT is included in the total price of £160??

I'd be so grateful if you help me solve it.

I'm baffelled [sp?]

Unless we know the markup on the respective goods how can you split out the VAT if it is genuinely a mixed supply?!

I.e. 30+(50+VAT) does not = 160

So unless we assume there is no markup on the ZR goods and a service element is the remainder (at the SR) then the answer is

£160 (total VAT inc) - 30 (ZR) =£130 (total SR VAT inc)

£130 x VAT fraction applicable (i.e. 7/47ths if @17.5%)

by **spidersong** on Tue Aug 31, 2010 12:29 pm

Following on from Generix, I'd have assumed we're meant to assume an identical mark up accross the goods, and that the calculation should go:

Cost of sale = 30 z/r + 50 s/r + 8.75 VAT = £88.75

ZR Element = 33.8% of cost (30/88.75), SR Element = 66.2% of cost (58.75/88.75)

Sale price £160.

£160 x 66.2% = SR element of sale = £105.92

VAT element = £105.92 x 7/47 = £15.78

As Generix says though the question doesn't give enought information to formulate a proper answer without knowing if the markups are uniform or different for different types of goods, as a mixed liability can be calculated on any reasonable method and isn't just restricted to an analysis of cost.

[Also I'm sure the supplier would rather argue for no markup on the Standard rated goods and keep the VAT liability to £8.75, whilst HMRC would be going for the liability from Generix's answer]