Tax-equivalent yield for retail shop owners: a practical guide
Tax-equivalent yield explained for retail shop owners, with a worked example, a checklist and the mistakes to avoid.
Why this matters for retail shop owners
Retail shop owners deal with tax at the till every day, so getting rates and receipts right is part of running the shop.
Worked example
Here is the calculation with sample figures. Change any number in the Tax-Equivalent Yield Calculator to run your own.
| Tax-free yield (%) | 3.5% |
| Tax rate (%) | 24% |
| Taxable-equivalent yield (%) | 4.61% |
|---|
Tax-equivalent yield: how it works
Tax-free bonds pay lower yields than taxable bonds. The tax-equivalent yield shows what a taxable bond would need to pay to match a tax-free one.
Divide the tax-free yield by 1 minus your marginal tax rate.
A second example with larger figures
Scaling the inputs up shows how the result moves. Percentages stay the same, so the tax grows in proportion to the amount it is applied to.
| Tax-free yield (%) | 3.5% |
| Tax rate (%) | 24% |
| Taxable-equivalent yield (%) | 4.61% |
|---|
Using the calculator step by step
- Open the Tax-Equivalent Yield Calculator.
- Enter your own figures on each numbered line.
- Set the rate to the one that applies to you. Defaults are examples, not advice.
- Read the result and the formula below it.
Key terms
- Tax credit
- An amount subtracted directly from the tax bill, worth its full face value.
- Standard rate
- The rate that applies to most goods and services unless a specific reduced rate, zero rate or exemption applies.
- Effective rate
- Total tax divided by total income, the average rate you actually pay.
- Net amount
- The amount before tax is added. On an invoice it is the figure the tax is calculated on.
- Exempt supply
- A sale that falls outside the tax entirely. No tax is charged and input tax usually cannot be reclaimed.
A quick checklist for retail shop owners
- Find your marginal rate.
- Calculate the equivalent yield.
- Compare like-for-like maturities and credit quality.
Common mistakes to avoid
- Using the effective rate instead of the marginal rate.
- Ignoring state tax exemptions.
Run your own numbers. The Tax-Equivalent Yield Calculator updates as you type and shows the formula it uses.
Frequently asked questions
Why should retail shop owners care about this?
Retail shop owners deal with tax at the till every day, so getting rates and receipts right is part of running the shop.
What is the quickest way to calculate it?
Use the Tax-Equivalent Yield Calculator: enter your figures and it shows the result and the formula.
Is this tax advice?
No. It is general information for planning. Rules differ by country and change over time, so confirm with your tax authority or a qualified adviser.
This article is general information for planning, not tax advice. Rates and rules change; confirm with your tax authority or a qualified adviser.