Confused over VAT with a profit share client?

[nicknock]

Hi

I'm a marketing consultant and am VAT registered.

For one of my clients, I run events on a profit share basis. Basically we sell tickets and split the profits.

He thinks the best way to go about it is to invoice him for my half of the ticket sales, but knock off 20 % and charge that as VAT. So for example:

1 ticket is £5, therefore for my half of the sale, i would charge him £2 + VAT which would be 50p in this case.

I dont think thats right though as that means he's covering his own VAT, but i take the hit on it, as i will obviously have to pay VAT on my sales.

does that make sense!? Any advice on the best way to go about it would be much appreciated!

 

[Anna Chandley]

Is your client VAT registered?

Does the £5 ticket price include VAT or is it £5 plus VAT

By the way on your £2.50 share it would be £2.08 net plus £0.42 VAT.

Anna

 

[Billmccallum]

VAT is not relevant to the deal, if its based on simple ticket price, £5 split 2 ways is £2.50.

Assuming the ticket price is more than £5 as you say split the profit 50-50 not the ticket price.

If the ticket price is (for example) £10 and the costs £5, then you have to come to some agreement with the client if you want to cover the VAT amount....£10 ticket price, costs £5.42 leaves £4.58, split 2 ways is £2.29.

But is is all worth the hassle for 21p a shot????

 

[nicknock]

Hi

Yes my client is VAT registered.

Its a consumer event, so we charge £5 per ticket, no VAT charged to the consumer BUT we both pay VAT on the sale as we're both registered dont we?

We are selling tickets in volumes so it all adds up, we're hoping to make about 5 k on the event.

I gave the example of one ticket so it was easier to break down.

VAT is relevant isnt it as we both have to pay it?

VAT is 20 % isnt it? 20 % of 2.50 is 50p?

I know it only seems a really minimal amount, im just making sure we're doing it the right way. Im not up on my VAT yet, as you can tell!

 

[Scalloway]

By the way on your £2.50 share it would be £2.08 net plus £0.42 VAT.

Anna

If you receive £5 and split it in 2, then calculate VAT, Anna's calculation is correct. 2.08 X 20% is 0.42 (do the sum yourself). When you are taking a VAT inclusive figure you divide by 1/6 to get the VAT.

2.00 X 20% = 0.40

 

[Billmccallum]

Hi

Yes my client is VAT registered.

Its a consumer event, so we charge £5 per ticket, no VAT charged to the consumer BUT we both pay VAT on the sale as we're both registered dont we?

We are selling tickets in volumes so it all adds up, we're hoping to make about 5 k on the event.

I gave the example of one ticket so it was easier to break down.

VAT is relevant isnt it as we both have to pay it?

VAT is 20 % isnt it? 20 % of 2.50 is 50p?

I know it only seems a really minimal amount, im just making sure we're doing it the right way. Im not up on my VAT yet, as you can tell!

If its a VAT rated service or product you DO charge the customer VAT, but it would be inclusive in the price, as I said £4.17 + 83p VAT to give you the price to customer of £5.

So when you split with the client, you each get £2.08 +VAT (42p).

 

[nicknock]

Brilliant! Thanks for your help everyone.

I usually just invoice for my services plus VAT, much more simple than this profit share set up

Many thanks