Exclusive VAT | How to Calculate it?
Quote opposite to the inclusive VAT, VAT exclusive is the price of a good or product before VAT is added to it. Usually, the VAT-exclusive prices are useful for situations when prices are aimed at vendors who are striving to recover the charged VAT, for instance, the trade prices for businesses.
Exclusive pricing favors business owners who do not want to take the tax into account when selling their products or want a detailed account of capital when creating invoices.
What is Exclusive VAT?
Speaking of the VAT-exclusive calculation, if the amount already has VAT included, you can easily find the excluded amount by dividing the total work by 1 + VAT percentage (15% in the case of South Africa). Please note that VAT-exclusive is always less than the amount inclusive of VAT charges.
Key Elements of VAT Exclusion
- Businesses do not need to consider taxes in their rates.
- Tax is added to the final transaction.
- Tax is isolated on the product sale receipt.
How to Calculate Exclusive VAT?
Like inclusive VAT pricing, it is pretty straightforward for businesses to calculate exclusive VAT pricing. All you need to do is perform some simple calculations for the reverse VAT calculations. Here is how it goes.
Method 1
The formula for exclusive VAT is Net Amount = Amount / (100 + VAT Rate) x 100.
Now, let me break it down for you.
- First, decide what the VAT rate is for the calculation. As for now, the standard VAT rate for most goods and services in South Africa is 15%.
- Now, the amount of your product is to be divided by (100 + VAT rate) = (100 + 15) = 115.
- Once done, you are required to multiply the obtained value by 100.
- The resultant value will give you the net amount of the product that does not include the VAT charges.
- From this net amount, you can also calculate the total VAT using the formula, Total VAT = Total Amount – Net Amount.
Now that we have understood it, let me demonstrate this calculator through a real-life example. Suppose you have bought a product for the gross price of R500. The calculations to derive the net amount would be the following.
- The total amount of the product = R500.
- VAT Rate = 15%.
- As given by the formula, Net Amount = Amount (100 + VAT Rate) x 100.
- First, divide the amount by (100 + 15), which would become R500/ (100 + 15) = R500/ 115 = 4.3478.
- Now, multiply the obtained amount by 100. R4.3478 x 100 = R434.78.
- The net amount of this product is R434.78.
You can also get the total VAT from this amount.
- Total VAT = Amount – Net Amount.
- Total VAT = R500 – R434.78.
- The total VAT would be R65.22 on this product.
Method 2
The second formula to derive the exclusive VAT of a product is VAT Exclusive Price = VAT Inclusive Price / (1 + (VAT Rate / 100).
Now, let me break it down for you.
- First, decide what will be the standard VAT rate. In this case, it would be the standard VAT rate for South Africa, which is 15%.
- Now, divide this VAT rate by 100. 15/ 100 is equal to 0.15.
- Next, add 1 to the obtained answer, which is 1+0.15.
- Finally, you have to divide the VAT-inclusive price of the product by the obtained answer. The resultant amount would be exclusive VAT.
Next, let us understand it through a simple example. You bought a product for a gross amount of R500. Here is how you can derive exclusive VAT.
- Total amount = R500.
- VAT Rate = 15%.
- The formula is VAT Exclusive Price = VAT Inclusive Price / (1 + (VAT Rate / 100).
- First, divide the VAT rate by 100, which is 15/ 100 = 0.15.
- Adding 1 to the obtained value will be 1.15.
- Next, dividing the VAT-inclusive price by 1.15 would be R500/ 1.15 = R434.78.
- The VAT-exclusive price of this product is R434.78.
What is the VAT-exclusive price of a TV worth R175?
To work out the price excluding VAT, all you need to do is divide the price of the product by 1.15. Hence, the price of a TV worth R175 would be given by R175/ 1.15, which is R152.17.
In essence, calculating the South Africa inclusive and exclusive VAT on products is pretty straightforward. Simply put, all you need to know is to multiply and divide your product worth by 1.15 to determine the inclusive and exclusive VAT prices, respectively. I hope this guide has helped everyone get accurate VAT charges on different products.