Help with wholesale pricing and VAT - meeting tomorrow

[IvoryMint]

Hello,

I have a meeting tomorrow with a potential big buyer, we're fairly new to supplying wholesale and as such Im trying to be as prepared as possible for this meeting.

At the moment we aren't registered for VAT but if this meeting turns out well I expect we will need to within a 6-10 months of trading with these guys. (We sell greetings cards).

So my question is how do I work out what to charge them. Obviously in the beginning we wont be charging VAT but when we do, would we absorb that and not change the price? Obvs. they aren't going to change their retail price so Im wondering if they'd expect me to come to the meeting with the figures inc. VAT?!

I've been figuring the prices by working backwards (example below) <-- the numbers are figurative.

£10 (RRP) / 5 (the percentage they want to add to wholesale) = £2 <--wholesale price
£2 (wholesale) - 20% (VAT) = £1.60
£1.60 - £1 (Costs inc VAT) = £0.60

So does this mean I would take home 60p after VAT, which would mean that before im registered for VAT I would take home £1.40? (ignoring corp tax)

Sorry if this seems like a stupid question!

 

[Scalloway]

In the business world the price is always net of VAT as the purchaser will reclaim it. It is not a cost to them.

 

[IvoryMint]

So I should quote them the cost exclusive of vat and say 'not including VAT'

When a retailer says they want (for example) 100% markup are they excluding VAT?
So it would be my price ex vat + 100%, then they would add VAT to the price of retail?

Haha can you tell I'm new to this 'business' malarky!

 

[Scalloway]

Yes they would work out mark up then add VAT. VAT is just HMRC getting businesses to be unpaid tax collectors.

 

[IvoryMint]

Lol! Ok got you, so I should just work out everything ignoring VAT because thats what they'll be doing too Thank you for your help.

 

[DontAsk]

You do, however, need to get the most basic understanding correct.

£2 inc VAT is £1.67 + VAT, NOT £1.60, etc.

Your cost of £1 inc VAT will be £0.83 when you are registered and subtract the input tax. So your profit will be £0.84

 

[promdressers]

How did you get on?
You urgently need an accountant and some basic finance training. I don't see how you can negotiate with the "big boys", and have them take you seriously, if you have no fiscal understanding. Practically everyone doing predominantly B2B business should be VAT registered. Remember you can claim all your VAT spend back, and can backdate claims quite generously.