Do I need to register for VAT

Discussion in 'Accounts & Finance' started by Shab12345, Aug 14, 2019.

  1. Shab12345

    Shab12345 UKBF Newcomer Free Member

    6 0
    I've started selling sofas for a local company using my own eBay/paypal account, I get £20 for each sofa I sell. So after each sale I cut my £20 and ebay/PayPal fees and send the rest to the sofa company bank account who then delivers the sofa.

    I have been doing it for nearly 2 month and already the turnover is approx £80k but my profits are quite low (approx £3000). I do not receive invoices from the sofa company.

    Can I be seen as the agent so my turnover is the £20 for each sale rather then the £600-£1000 value of the sofa? So would I have to register for VAT based on my commission or the value of the sofa sale?

    Many thanks
     
    Posted: Aug 14, 2019 By: Shab12345 Member since: Aug 14, 2019
    #1
  2. Scalloway

    Scalloway UKBF Legend Free Member

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    You would need to have paperwork confirming the position from the sofa company otherwise HMRC will assume all your sales are liable for VAT.
     
    Posted: Aug 14, 2019 By: Scalloway Member since: Jun 6, 2010
    #2
  3. Shab12345

    Shab12345 UKBF Newcomer Free Member

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    Thanks for the reply. would this be in the form of a contract between myself and the company? Also should I also tell my customers on the ebay listing that I am an agent and their contract is with the sofa company?
     
    Posted: Aug 14, 2019 By: Shab12345 Member since: Aug 14, 2019
    #3
  4. Mr D

    Mr D UKBF Legend Free Member

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    Do you invoice the company showing what you are charging them?

    Effectively it sounds like you are dropshipping - selling their products then buying the product once you have a sale. And quite cheaply too.
    Doing the same work the company would have to do for near enough the same cost - just you charge them £20.
     
    Posted: Aug 14, 2019 By: Mr D Member since: Feb 12, 2017
    #4
  5. Shab12345

    Shab12345 UKBF Newcomer Free Member

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    No, I just deduct the £20 and the ebay/PayPal fees and send the rest of the money to their bank account. They have given me access to their system where I log the sale.
     
    Posted: Aug 14, 2019 By: Shab12345 Member since: Aug 14, 2019
    #5
  6. Mr D

    Mr D UKBF Legend Free Member

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    What is concerning is it sounds like you have the £80k turnover and are spending all but a tiny part on cost of sales (buying the items), your sales fees and transactions fees.

    The link between you and the supplier appears from what you have said to be simply trading, not agent or referrer.

    How will HMRC see it?
     
    Posted: Aug 14, 2019 By: Mr D Member since: Feb 12, 2017
    #6
  7. GraemeL

    GraemeL Pain in the neck? Full Member - Verified Business

    5,065 1,084
    You are advertising on ebay.
    The customer places an order with you.
    The customer sends you the money into your account..

    This means that you are the supplier. Not only does this mean you have huge potential VAT and personal income tax issues, but you are also providing the guarantee on the product.

    If you want to be seen as an agent, the customer must pay directly to your supplier and your supplier sends you £20. Plus paperwork.
     
    Posted: Aug 14, 2019 By: GraemeL Member since: Sep 7, 2011
    #7
  8. Shab12345

    Shab12345 UKBF Newcomer Free Member

    6 0
    Thanks for all the replys.

    I am not actually buying the item, it never comes into my possession, I do not get an invoice for it. I go onto the sofa company website and book the delivery for them. The sofa company provides the customer with a VAT invoice

    I have heard where there are 3 parties involved in the transaction one can be seen as an agent and is not liable for the full transaction value, just their own commission.

    This is such a difficult area. I have spoken to over 5 accountants with conflicting advice on whether I have to register for VAT or not. Confused as what to do. I don't mind registering, it will be worth it in the long run but really don't want to if I don't need to.
     
    Posted: Aug 14, 2019 By: Shab12345 Member since: Aug 14, 2019
    #8
  9. Mr D

    Mr D UKBF Legend Free Member

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    The item doesn't need to come into your possession to be the one selling it.

    An agent relationship appears to be not how you have been handling things. Talk things over with your supplier of furniture. May well have to change how you operate.

    Oh and if you register for VAT? A £3k sale becomes £2500 sale plus £500 you collect in VAT to hand to HMRC.
     
    Posted: Aug 14, 2019 By: Mr D Member since: Feb 12, 2017
    #9
  10. paulears

    paulears UKBF Big Shot Full Member

    3,908 971
    If the customer has issues, and paid via PayPal, then PayPal could freeze the full amount they paid from your account. Paypal consider whoever gets the money as the seller, because you are! Taking the full cost is a huge liability, for a measly twenty quid. If you register for VAT, you won't have anything left!
     
    Posted: Aug 14, 2019 By: paulears Member since: Jan 7, 2015
    #10
  11. Shab12345

    Shab12345 UKBF Newcomer Free Member

    6 0
    Hi, yes this has happened and the sofa company resolved the issue. When I first started selling for them we agreed all issues would be resolved by them and they would pick up the bill if there were any chargebacks etc.
     
    Posted: Aug 14, 2019 By: Shab12345 Member since: Aug 14, 2019
    #11
  12. Shab12345

    Shab12345 UKBF Newcomer Free Member

    6 0
    What do you guys make of this, surely I can act as an agent considering this:

    I can't post the link but if you search for: The three VAT parties explained
     
    Posted: Aug 14, 2019 By: Shab12345 Member since: Aug 14, 2019
    #12
  13. Mr D

    Mr D UKBF Legend Free Member

    15,606 1,719
    Would need to redo your relationship with the company.
    Probably rejig how the money is dealt with too. You hand over the whole amount and invoice them for your fee for the sale may be one way, there may be others.

    Oh and be a good idea to increase your fee too. You doing all the work for £20 is a good deal for the company, just not sure its a good deal for you.
    Out of that you have your insurance, electricity, broadband, time, perhaps accountants fees etc.
     
    Posted: Aug 14, 2019 By: Mr D Member since: Feb 12, 2017
    #13
  14. GraemeL

    GraemeL Pain in the neck? Full Member - Verified Business

    5,065 1,084
    If the customer pays you after seeing your product on your ebay site, then you have sold the item. The contract is between the customer and you.

    You then in effect decide on where to source the product from (even though you have only one source)and ask them to make a delivery on your behalf, for which you then pay them for product and delivery. That might not seem to you that you are buying anything, but you definitely are. Whether or not it comes into your possession.

    You might not like the answer, but that's the position, don't try to turn things around so that they suit you. You are the seller, you are not acting as an agent. You are not treating VAT correctly. You are not accounting for costs and income correctly. The manufacturer is sending VAT invoices to people from whom they have not collected VAT. Its a mess.

    From the search for "The three VAT parties explained" you suggested you will get this:-

    In order to identify which party is the principal within the relationship, the contract and the customer’s perception should be considered. Which party does the contract point towards? Does it make it clear who the principal is? It may be necessary to delve deeper, by asking questions such as who would a customer complain too if they had a problem? Customer perception is key; from their point of view, which party do they think they are dealing with? This will be the principle. If the transaction is online, the terms and conditions can often point towards this. It is worth bearing in mind that despite the above, HMRC will always take the view of the underlying ‘commercial reality’ of the transaction, which can override what a contract might state.

     
    Posted: Aug 15, 2019 By: GraemeL Member since: Sep 7, 2011
    #14
  15. ecommerce84

    ecommerce84 UKBF Regular Free Member

    536 156
    This feels to me like it could be so easily rectified.

    Set them up their own eBay account and PayPal account, all in their companies name and with the company address (this should be happening anyway, it should not be gong through your account as it will raise suspicions of money laundering).

    You are then employed by them to be the ‘eBay manager’ or such forth on a commission only basis for £20 per sale.

    It may work with you being self employed and invoicing them for the commission, but this is reliant on a few other boxes being ticked, namely that you are doing work for others and are able to choose as and when you do work for this particular company.
     
    Posted: Aug 15, 2019 By: ecommerce84 Member since: Feb 24, 2007
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  16. Chris Ashdown

    Chris Ashdown UKBF Legend Free Member

    10,431 2,109
    You have sold 80k of sofa's and earned £3000 so i guess that each sofa is £533 each and you sold 150 of them
    £20 for selling something valued at £533 is rather small profit, for that turnover and your obvious skills in marketing and selling
     
    Posted: Aug 15, 2019 By: Chris Ashdown Member since: Dec 7, 2003
    #16