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Has anyone any experience of including VAT(Value Added Tax) in the price that is displayed next to a product?

The cost of a product that already includes VAT and clarifies that it is included

The standard pattern seems to be to add VAT on at the payment screen, after the user has already seen a lower price on the product screen.

VAT being added onto the original price at checkout and giving a total cost

If there is initially a disclaimer that VAT is excluded, how many users actually know what that means or indeed see the often small text saying that this is case?

Could including VAT in the price be a solution to prevent drop off at checkout?

Also, would this pattern work for a business to business transaction? Are business owners looking for more of the standard pattern as they will be claiming the VAT back anyway?

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    Who is the target audience? If it is international then that means the VAT is not payable for non-EU people and therefore useful to show separately. If it's for UK / EU only stores then the outcome may be different. – JonW Feb 26 '15 at 12:20
  • Thanks. The target audience is UK and majority of our users are UK. I'd omit the VAT for international customers to prevent confusion – tweedman23 Feb 26 '15 at 12:25
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    Typically displayed prices should include VAT for end users, but if your target audience is trade/business, then show price with and without (or without but state ex. VAT). Businesses can claim VAT back for business expenses so they're interested in the base price. UK resident 'high street' shoppers can do no such thing so the ex-vat price is not of interest, they just want to know the price - no complications, no confusions, no surprises. By all means show the final VAT content at checkout - like you might see on a high street receipt. – Roger Attrill Feb 26 '15 at 12:36
  • You shouldn't need to think this through too much - all or most of your competitors should be doing the same thing aren't they? – Roger Attrill Feb 26 '15 at 12:44
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    There are statutory regulations in the UK regarding the display of prices. VAT must be included in consumer prices; B2B prices can omit VAT. It may be arguable that only indicating a VAT-inclusive price at the checkout breaches the regulations. – Andrew Leach Feb 26 '15 at 14:45
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This depends entirely on your target audience. There are two trains of thoughts, but both have ultimately the same outcome:

Tell them there and then on the product page.

In detail:

Audiences who pay VAT

Most consumers will not want to be surprised by VAT at the checkout (it is a hidden cost) and yes this would definitely reduce the number of abandoned carts. enter image description here Source: https://econsultancy.com/blog/11182-basket-abandonment-case-studies-and-tips-to-help-improve-your-conversion-rates/

Audiences who do not pay VAT

Simply: how will they know if that is the price they will pay - it may make it cheaper. So even if your headline price is without VAT (which is ok if your audience won't pay VAT) make sure you make it clear there that it is free from VAT. Also worth noting that telling a user once when they enter the site is not good UX - remove it from there and place it where users will be expecting to see it.

Solution

Lead with your headline price, but always say "includes VAT at 20%" or "+VAT at 20% = £42".

You can of course vary this. For example if you have business accounts, show with VAT by default, but if they are logged in, show without VAT by default.


Lastly our geographical placement is important - some countries - require you to display the price with VAT/taxes. Waiting until they reach the checkout may actually break certain regulations.

  • Thanks Tim. These are great stats. I'm interested about the regulations around showing/not showing VAT. Do you have anymore information on what countries have legal requirements around the display of price and VAT? – tweedman23 Feb 26 '15 at 16:06
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Yes, yes and yes! 37% of our customers would not proceed with the purchase once they would find out that VAT was added at the later stage.

We (my company) used to sell cheap trips around Europe to students. At first we thought that excluding VAT is a good idea, but shortly realised that we are loosing a lot of customers. After surveying those who never proceeded to a payment page we found out that almost 4 out 10 customers would be put off by final price that now had VAT added.

When people see a low price, they get excited and than you add VAT take the excitement away. In Europe most of the services display prises with VAT included, so customers know.

Some of the information contained in this post requires additional references. Please edit to add citations to reliable sources that support the assertions made here. Unsourced material may be disputed or deleted.

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    Where do you get this 37% figure from? Can you cite the source for it? – JonW Feb 26 '15 at 14:57
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    When I say "me" I mean "we are the source". Ok? – Ivan Venediktov Feb 26 '15 at 14:58
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    Ivan - If you are the source then please give a little more information so that others can reference you. Example: the company I work for processes in the neighborhood of 2000 sales a day. Up until x date we did not display VAT and had 50% abandonment rate, after including VAT the abandonment rate dropped to under 20%. .... – Mayo Feb 26 '15 at 15:01
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    Yes Ivan. Some more information on that figure would be beneficial. Details of target audience as well would help – tweedman23 Feb 26 '15 at 15:09
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    Sorry good sirs. My bad. We used to sell cheap trips around Europe to students. At first we thought that excluding VAT is a good idea, but shortly realised that we are loosing a lot of customers. After surveying those who never proceeded to a payment page we found out that almost 4 out 10 customers would be put off by final price that now had VAT added. – Ivan Venediktov Feb 26 '15 at 15:15
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As was hinted here before, it really depends on what the users are used to.

As a consumer in Israel, I'm used to seeing prices that include VAT (because that's the law in Israel). Recently I came to the US, and no one here shows you the sales tax (similar to VAT) before the check-out. Even e-commerce sites in the US show taxes only at the check-out. Though irritating, I soon became used to mentally adding those taxes in my head when I see a price. Thus, I predict no one in the US will abandon their cart for 'hidden' tax charges, because they are used to always see those charges at the checkout. Or as Benjamin Franklin said:

In this world nothing can be said to be certain, except death and taxes.

Bottom-line: follow what your users are used to in their regular shopping experience.

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    The US doesn't have VAT, it has sales taxes. They've both ways of taxing consumption but they work quite differently, and it may be harder to show sales taxes up front. – bdsl Sep 29 '15 at 22:23

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