Confused about VAT.....Help!

[WHARTY]

Hi.

Ok i am confused just writing this. I will soon be launching my new vending machines into large nightclubs. (Luminar) When i was sorting out my pricing structure i didn't include VAT as i wasn't VAT registered.

I place my machines in the venues for free and don't sell the stock to the venues. I sell the stock straight to the end user.

So lets say i buy the product for x amount and sell for y amount.
I knew my profit margin was the difference between x and y, but now i have VAT registered how does it work? I can now claim back the VAT i was paying but now i have to charge my customers VAT too. I can't increase the price as it would be too much so have i in theory just lost 17.5% of my £4? meaning my profits are lower? as i can't really charge VAT on a vending machine.

I think i have just answered my own question really. I think i will have to "lose" the 17.5% from my profits rather than increase the price?

I know this is probably a simple question for most people but i will admit that this sort of stuff confuses the hell out of me!

I am assuming that my real retail price is £3.30+VAT which totals £4.

I would also like to know the VAT situation for the venue owner? will i have to charge VAT on the profits. I really don't know how it's all going to work.

Sorry if this doesn't make sense.

Kind regards

Lee

[Rolo Tomasi]

First of all the amount of VAT charged will depend on the product you are selling. Assuming they are standard rate items then if your retail price is £4 this is £3.40 plus VAT (not £3.30).

The VAT you pay to the Revenue will be the difference between the amount of VAT you have collected less any VAT you have been charged. You will probably be paying VAT when you purchase the product so the actual cost to the business will not be the full 60p. For example:

Buy the product for £2.00 plus VAT
Sell the product for £4.00 including VAT

When you were not registered your profit was £1.65 per sale

Now you are registered, out of you £1.65 you will have to pay 25p to the VAT office so, although you are left with less profit it is not quite as bad as you think.

You will probably have to charge VAT to the venue owner but I seem to recall that there are special schemes covering vending machines so you will need to look into this.

[sn2476]

If you were not going to pass the thresh hold of £67000 then deregister now. Way to much paperwork and vat puts allot of people off.

[03suttoa]

I am having the same problem...

I am in the process of registering for VAT as a company who are selling the products I want require buyers to be VAT registered. When you buy products from them you dont get charged VAT.

So say for example I bought a product for £200 and that is without VAT, it sells for £250. What do I pay VAT on? The £50 profit I have made or do i pay 17.5% of the entire £250?

If anyone has any advice this would be great!

Thanks.

[MyAccountantOnline]

If you were not going to pass the thresh hold of £67000 then deregister now. Way to much paperwork and vat puts allot of people off.

The VAT deregistration threshold is £68,000 (the registration threshold is £70,000)

[sn2476]

17.5% on the £250

[MyAccountantOnline]

So say for example I bought a product for £200 and that is without VAT, it sells for £250. What do I pay VAT on? The £50 profit I have made or do i pay 17.5% of the entire £250?

.

You will charge VAT at 17.5% on the £250 assuming its not exempt/zero-rated, but you may be able to use the flat rate scheme so that you actually pay a lower % to HM Revenue & Customs.

[03suttoa]

ok thanks,

this does not seem right, I have just looked at a product, it sells for £535 wholsail. And £650 retail.. VAT on the £535 is £93 at 17.5%. so I would get charged £628 for the wholesale plus VAT. that leaves me with £22 profit.

But then if i sold it on ebay for £650, i get charged £33 for the final selling fee.

That leaves me with -£11.

So there is no way of making money on that due to VAT!

[wizzard]

Look for cheaper products.

[What If]

Another thing to consider when structuring your prices is the planned VAT increase to 20%, which I believe will be effective from January. If your having to absorb this cost it will reduce your margins further!

[ch4580]

Again, as above, I'm not sure how this applies to vending machines...

but basically, VAT registration SHOULD help you out, so long as you're prepared to do the work....

since EVERYTHING that you pay VAT on, that you have to use, can be reclaimed...

so, in this case,

(working on vat at 20% for ease of figures!!!)

you bought a product for £2.40 ish,
and sold it for £4.00,
(£1.60 profit)

(including the vat you'll claim back, and the vat you'll pay...)
you're now going to pay £2.00, and sell for £3.33
(£1.33 profit)

however...
for the fuel you used to go and re-stock the machine, and the parking outside the venue, and the sack trolley you bought to help install the thing, and the electricians invoice to get it installed, and the lunch you bought while you were working away from your normal place of work, your phone bill.... (etc etc, you get the idea)...
you can claim back all the VAT on those costs.

and all your large costs too...

just remember not to claim VAT back on something you didnt pay VAT on...
Like some foods,
Contractors who aren't VAT registered,
Insurance.