VAT Question

[MarkPearson]

I have something that is confusing me.

It is VAT related question.

For example if we have a £10 product and a thiird party company(company A) is selling our products on our behalf. They would be taking the order and payment and we will invoice them for the cost, minus their commission.

My confusion is who pays the VAT and who pays what?

Just for the record lets say that we are (Company B) and they are (Company A)

And also lets say that we get 80% of the £10 sale (£8.00) and they get 20% (£2 commission)

Who pays what VAT as we will be selling the product to them for £8, do we pay VAT on £8?

But they sell the product for £10 to the customer, It would seem very unfair for them to have to pay FULL VAT on £10

We are effectively dividing the profits on the sale after all.

[creospace]

VAT is included on all sales its just that effectively company A claims the vat back on what you have charged them and pays the VAT that is generated on their sale price so.

10.00 Gross sale price
8.51 is net of VAT
They pay 1.49 to VAT man and £8.00 to you.
Profit = 51 pence
But they claim back £1.20 that is the VAT on your price
Profit =1.71

You charge them £8.00 inc vat
6.80 net of VAT

So if they want clear £2 then you need to adjust your price accordingly.

I guess there are alternatives and I may of got the above wrong, I'm not an accountant and if i have then it wil be 2 people learning!

Gary

[KM-Tiger]

At face value you would need to charge VAT on the £8, and it's company B's problem how to deal with that. But I see here (http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_InfoGuides&propertyType=document&id=HMCE_CL_000139#P342_31787) that there are special arrangements for florists.

Looks like some expert advice is needed, or maybe the HMCE helpline?

[Alpha]

Mark

The 'special arrangements' for florists noted in Kent Manufacturers link do not apply to you.

In the scenario you have outlined where you are invoicing company A (I gather you are not vat registered but they are?)

You would charge whatever you price you have agreed for the supply to company A.

Company A would then charge the customer £10 as per creospace if that was the agreement and would have to pay over £1.49 to HMRC. (The £10 would include vat)