Calculating VAT

[phrogget]

So, I'm going to be opening a convenience store and sandwich bar in a couple of months and I'd a tad confused about how to calculate VAT.

So, I understand you have to pay VAT on some products, but not others, and I'm wondering how at the end of a day when I cash up and find I've taken £1200, how am I supposed to know how much of that is products with VAT vs. Products without VAT?

If all £1200 is sandwiches, then I don't need to pay any VAT, but if all £1200 is Mars bars I need to pay 20% of it, but my till is just a till....

Hopefully this is a stupid question with an obvious answer

 

[Scalloway]

Two options

1. set up your till so one button is for VATable goods and the other for zero rated. You need a system that quickly tells you which is which.
2. Use a retail scheme

https://www.gov.uk/vat-retail-schemes

 

[TheCyclingProgrammer]

You should also try and get your head around the basics of calculating VAT. If you’ve made gross sales of £1200 of VATable goods, you would pay 16.7% of that (1/6th) to HMRC, not 20%. £200 in this case (assuming standard rated goods).

 

[Newchodge]

So, I'm going to be opening a convenience store and sandwich bar in a couple of months and I'd a tad confused about how to calculate VAT.

So, I understand you have to pay VAT on some products, but not others, and I'm wondering how at the end of a day when I cash up and find I've taken £1200, how am I supposed to know how much of that is products with VAT vs. Products without VAT?

If all £1200 is sandwiches, then I don't need to pay any VAT, but if all £1200 is Mars bars I need to pay 20% of it, but my till is just a till....

Hopefully this is a stupid question with an obvious answer

I think you are looking at this the wrong way round. You ask
"how am I supposed to know how much of that is products with VAT vs. Products without VAT?" You mean
"I have to know and prove how much of that is products with Vat vs. Products without VAT, how do I do that".

 

[phrogget]

You should also try and get your head around the basics of calculating VAT. If you’ve made gross sales of £1200 of VATable goods, you would pay 16.7% of that (1/6th) to HMRC, not 20%. £200 in this case (assuming standard rated goods).

I thought VAT was 20%?

 

[phrogget]

Two options

1. set up your till so one button is for VATable goods and the other for zero rated. You need a system that quickly tells you which is which.
2. Use a retail scheme

Thanks, that was very helpful

 

[Scalloway]

You should also try and get your head around the basics of calculating VAT. If you’ve made gross sales of £1200 of VATable goods, you would pay 16.7% of that (1/6th) to HMRC, not 20%. £200 in this case (assuming standard rated goods).

I thought VAT was 20%?

Yes VAT is 20%. However if you are calculating VAT on a VAT inclusive price you take 1/6th.

Net Price ...................£100
VAT @ 20% .................£20
VAT inclusive price £120

20% of £120 is £24

1/6 of £120 is £20

 

[cjd]

Yes VAT is 20%. However if you are calculating VAT on a VAT inclusive price you take 1/6th.

Net Price ...................£100
VAT @ 20% .................£20
VAT inclusive price £120

20% of £120 is £24

1/6 of £120 is £20

Too difficult!

To add VAT to a price multiply the ex VAT price by 1.2

£100x1.2 = £120

To remove VAT from a price divided by 1.2

£120/1.2=£100

(The VAT element if you need it is then £120-£100=£20)

 

[TheCyclingProgrammer]

How is finding 1/6 of the gross amount "too difficult"? Just divide the gross amount by 6 rather than faffing around dividing by 1.2 and then taking the result away from the gross.

 

[TheCyclingProgrammer]

I thought VAT was 20%?

It is, but it's applied to the net amount. Once you've got the gross amount, you need to take 1/6 off to get back to the net amount (or simply calculate 1/6th to find the actual amount of VAT).

 

[phrogget]

Yes VAT is 20%. However if you are calculating VAT on a VAT inclusive price you take 1/6th.

Net Price ...................£100
VAT @ 20% .................£20
VAT inclusive price £120

20% of £120 is £24

1/6 of £120 is £20

Wow, that makes no sense to my brain at all.

So, if I'm selling a Mars bar for a $1.20 I pay 16.7 percent vat if I'm selling.

But if I'm selling a Mars bar for $1+VAT I pay 20%?

And if so, why?

 

[TheCyclingProgrammer]

Wow, that makes no sense to my brain at all.

So, if I'm selling a Mars bar for a $1.20 I pay 16.7 percent vat if I'm selling.

But if I'm selling a Mars bar for $1+VAT I pay 20%?

And if so, why?

Sorry, but this is basic GCSE level maths (if that).

You charge 20% VAT on top of your net selling price. So if your net price is £1, 20% of this is 20p making the total price £1.20 including VAT.

20p is 20% of £1 (1/5) but it’s 16.7% (1/6) of £1.20. It can’t be 20% of the gross because 20% of £1.20 is 24p.

Can you really not see this? I can’t think how else to explain it.

 

[Scalloway]

So, if I'm selling a Mars bar for a $1.20 I pay 16.7 percent vat if I'm selling.

The VAT is 16.7% of the selling price

But if I'm selling a Mars bar for $1+VAT I pay 20%?

VAT is 20% of the net price

 

[cjd]

This sort of thing messes with people's heads if they're not used to it and anyone asking questions about it is not used to it.

Multiplying and dividing by 1.2 (ie 20%) keeps it simple(ish)

 

[DontAsk]

Two options

1. set up your till so one button is for VATable goods and the other for zero rated. You need a system that quickly tells you which is which.

And teach the staff to use it properly!!!!!!!!

Wow, that makes no sense to my brain at all.

So, if I'm selling a Mars bar for a $1.20 I pay 16.7 percent vat if I'm selling.

But if I'm selling a Mars bar for $1+VAT I pay 20%?

No, if you sold it for $1 you still pay the say 16.7%.

And if so, why?

You are confusing VAT exclusive and VAT inclusive pricing.

 

[CriticalThinker]

The VAT is 16.7% of the selling price

Don't we all just love maths

Why is it 16.67% you ask...simple the selling price (VAT inclusive price) is 120% of the VAT exclusive price and 20% of the selling price is the VAT therefore 20/120 x 100 (to make it a percentage) is 16.67% or 1/6.

 

[Newchodge]

Sorry, but this is basic GCSE level maths (if that).

No, it is basic arithmetic!