Different VAT ratios, profit calculation?

[sipexa]

Hi,

Let's assume that, I am purchasing a product with reduced VAT rate at %5 costing £100+%5=£105

And by using its parts, I am creating a new product, but product is now with normal VAT rate at %20, selling at £120 + %20 = £144

In this situation, what will be my profit, and how much money will I pay for VAT to HMRC?

Thank you

Kind Regards

 

[DWS]

You pay HMRC £19.00 in VAT and you have a pre tax profit of £20.00

 

[japancool]

You pay HMRC the difference between the VAT you actually charged and the VAT you actually paid.

 

[paulears]

If you are VAT registered - surely your profit is calculated on the ex-VAT figures - because the 20% you add on when you sell it, is not yours, and the same applies in reverse on the purchase - so you look at the £100 you paid, ignoring the five quid, and the £120 you keep of the £144 - so the profit is £20. Looking at the £5 against the £24 is an illusion of profit. The difference between input and output tax isn't some kind of income in the books. I'm using ebays UPS shipping at the moment and it always grumbles that the £4.99 I cannot recover VAT content - but there isn't anything to recover as it's not charged, but when I use Parcelforce, I can recover VAT. 4.99 vs 9.20 in a typical case, so I constantly think parcelforce are nearly double, but they're not - it's five quid vs just over 7 quid really - I have to forget the VAT for considering which to use for specific sales. Do net figures for all your calculations. The VAT components are just work you do free of charge for HMRC

 

[Paul Kelly ICHYB]

Assuming registered for VAT
£120 sales - £100 cost = £20 ex VAT profit