VAT Rise and the 5s & 9s…

The Chancellor was probably not thinking price-points when announcing the VAT hike to 20%.....!

Impact of VAT rise to 20% on brand retailing at £3.99, inc VAT

RSP inc VAT @ 17.5% = £3.99

Say retail margin          = 25%

                                     = £0.998

i.e. trade price is £2.547, ex VAT
VAT @ 17.5%             = £0.594 i.e. (£3.99/117.5) x 17.5

RSP inc VAT @ 20%   = £4.08 i.e. (£3.99/117.5) x 100 x 1.20

Retailer restores RSP to £3.99, (unless you and the savvy consumer prefer a price hike to £4.49?)

Either the retailer absorbs the loss:

RSP ex VAT @ 20%    = £3.325

i.e. New retail margin  = £0.778 i.e. (£3.325 - £2.547 )

                                     = 23.4%


Or, the retailer demands a cost-price reduction from the supplier to restore the 25% margin:

25% Retail margin on £3.99 ex VAT @ 20% = £0.831 i.e. £3.325 x 0.25

Therefore new trade price                             = £2.494 i.e. £3.325 - £0.831

i.e. a 2.1% reduction in trade price i.e. (£2.547 - £2.4940)/2.547 x 100

Q1: What incremental sales do you need to restore your margins?

Q2: Can you really afford not to be ready for the inevitable negotiation sessions?


(or would you prefer our inhouse NamCalc workshop tailored to your SKUs, competitors and customers, in order to pull the whole team up to speed?)

More on retailer reactions to VAT hike