Percentage Application Example

In a discount warehouse a hi-fi music centre is proced at £256. The customer is entitled to a 10% discount, but he must pay 17.5% VAT.

Does it make any difference whether the discount is subtracted before or after adding the VAT?

Compare the two methods of approach:

  • First subtracting the discount, then adding the VAT.
  • First adding the VAT, then subtracting the discount.

Suppose the discount is subtracted first:

  Discount = 10% of £256 =
10
100
× £256 = £25.60

This means that the discount price is

£256 - £25.60 = £230.40

Add the VAT

  VAT = 17.5% of £230.40 =
17.5
100
× £230.40 = £40.32

The total price is therefore

£230.40 + £40.32 = £270.72

 

What happens if the VAT is added first?

  VAT = 17.5% of £256 =
17.5
100
× £256 = £44.80

After adding the VAT the price is

£256 + £44.80 = £300.80

Subtract the discount

  Discount = 10% of £300.80 =
10
100
× £300.80 = £30.08

The final price is therefore

£300.80 - £30.08 = £270.72

Both give the same answer!