VAT Profit

[AirSupplies]

Hi

I don't know if it the heat or what, but I am struggling with this one.

If I buy a product in for:

£50 + VAT. I pay £8.75 in VAT. Total £58.75

If someone asks me for a price for that item and is pushing for a good deal, in my head is ok to say "well I buy it in for £50, I'll sell it for £100 and make £50". All pre vat.

So I sell it for:

£100 + VAT. Customer pays £17.50 in VAT. Total £117.50

When we do our vat return, do we take £8.75 from £17.50 to leave the difference.

Sorry if I am being a bit dumb, but I thought I would get help on the forum before embarassing myself to our accountant!!

Many thanks

[Advisor1]

Yes

Add up all the VAT on the sales and take away all the VAT on the purchases.

If the figure is + send this money to HMRC, if it's - they will send you a refund.

[elainec100@cheapaccounting]

exactly right

the profit is still £50

[AirSupplies]

Thanks.

So is my profit actually £50 + (17.50-£8.75) = £58.75??

[elainec100@cheapaccounting]

Thanks.

So is my profit actually £50 + (17.50-£8.75) = £58.75??

No your profit is £50.

You pay £17.50 to HMRC and claim back £8.75 - net pay to HMRc is £8.75

Vat has nothing to do with profit - you are an unpaid tax collector!

[MyAccountantOnline]

Sorry if I am being a bit dumb, but I thought I would get help on the forum before embarassing myself to our accountant!!


You should never feel embrassed about asking your accountant - it's what you pay an accountant for;):)

[AirSupplies]

So I gain £8.85 right on top of my £50? Sorry this is confusing.

[MyAccountantOnline]

So I gain £8.85 right on top of my £50? Sorry this is confusing.

Elaines desciption of being an unpaid tax collector is one I use and often helps to explain how VAT works.

When you think about the figures ignore the VAT.

Put the VAT in a seperate 'pot' - you are just collecting that for the Government. The 17.5% you charge isnt your money and as a VAT registered business you can claim back VAT you incur on expenses. But rather than have a payment of VAT and a refund you pay or recover the difference between the VAT on sales (output VAT) and the VAT on expenses (input VAT).

[AirSupplies]

Thanks but I still don't get it. Where does that VAT go to?

[wizzard]

Thanks but I still don't get it. Where does that VAT go to?

As already explained the only time you will get a VAT refund from HMRC is if the VAT you've paid is more than the VAT you've charged your customers.

[akirk]

product
£50 cost out from you to supplier
£100 sale price in from customer to you
profit = £100 - £50 = £50 profit

vat
£8.75 paid by you to supplier (vat on goods supplied to you - they were £50 + £8.75 if bought in)
£17.50 paid by customer to you (vat on goods you sell)
£8.75 difference paid by you to HMRC as tax collected
= £8.75 x 2 paid out (£17.50)
= £17.50 paid in
end result is neutral

vat when you are registered is always separate to other costs and should end up being neutral after you factor in your payment to or from HMRC
i.e. your payment to them, or cheque from them balances the VAT books.

Alasdair

[MyAccountantOnline]

Thanks but I still don't get it. Where does that VAT go to?


You pay any VAT due to HM Revenue & Customs - this is where the VAT return form comes in. Its there that you declare the VAT.

[elainec100@cheapaccounting]

Can I just check that you are vat registered. Seems a bit strange to ask the question if you are as you will have vat returns to complete

[AirSupplies]

Yeah we are VAT registered. I do not get involved with the VAT return or accounts, probably a good thing.

Thanks for your help, I understand what you are saying. And also got my head screwed back on now.