For those who may not know this, currently those who buy tampons (women) have to pay VAT (Value Addex Tax – a tax on goods sold in the UK) at 5%. This means that for every £1 spent on tampons, an extra 5 pence goes to the HM Revenue & Customs (HMRC), raising the cost of the product from (for example) £1.00 to £1.05.
This has been unsurprisingly controversial, where women have had to pay tax on tampons used for a biologically necessary and almost unavoidable monthly event. Which is wrong. It has been estimated that women can spend around £18,000 on periods in their lifetime, so the overall amounts are not insignificant.
Quite rightly, Tesco have said they they will adjust their prices so that women in their stores will no longer pay this extra levy on their body, but what exactly are Tesco doing?. Disclaimer: I did ask Tesco for clarification on this on Twitter, but have so far received no response.
Consider the following news quote in The Guardian – “Tesco has become the first UK supermarket to cover the cost of the tampon tax for customers, after it cut the price of nearly 100 women’s sanitary products by 5%. The retailer said that the move – which sees Tesco absorb the cost of VAT, set at 5% on sanitary items – would help women who found themselves in financial difficulty.”
You may think there’s nothing wrong with that, but if you think like an accountant, then you will realise that taking 5% off the price of something is not necessarily the same as absorbing the 5% VAT on an item. Here is a mathematical example:
You buy tampons at a cost (without VAT) of £4.00
5% VAT added to that would be £0.20 (5% of £4.00), so you normally pay £4.20 (
Option 1: If Tesco absorb the 5%, then they are selling an item for £4.00 which is £3.81 net paid and £0.19 which Tesco then forwards to HMRC on VAT
If Tesco are reducing the price by 5% (from £4.20), then the cost the customer buys is £3.99 (£4.20 – 5%)
Let’s be honest, the difference is £0.01 for every £4 spent and in the grand scheme of things the amount is very small, but to those of us accountants and bookkeepers who do have to think about the consequences of thinks, it is mathematically significant and in accounting terms very much so.