How to calculate profit when trading under VAT Margin Scheme

Discussion in 'Accounts & Finance' started by Dave0108, Jun 26, 2017.

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  1. Dave0108

    Dave0108 UKBF Contributor Free Member

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    I sell used clothing on eBay and have crossed the VAT turnover there-hold in sales so will need to pay VAT. Because I sell second hand goods I want to pay VAT under "Margin Scheme".

    What is the correct way to calculate my profit for corporate tax liability that I pay 16.67% VAT on my profit margin?

    is it:

    A. sale price - cost of sold goods - expenses - Margin VAT = profit
    or
    B. sale price - cost of sold goods - expenses = profit

    Advice would be appreciated.
     
    Posted: Jun 26, 2017 By: Dave0108 Member since: Oct 16, 2015
    #1
  2. Scalloway

    Scalloway UKBF Legend Free Member

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    Posted: Jun 26, 2017 By: Scalloway Member since: Jun 6, 2010
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  3. Dave0108

    Dave0108 UKBF Contributor Free Member

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    While that page does explain about how to calculate the VAT. It does nothing to tell me about how to work out my corporation tax liability when working under Margin Scheme. This is what I am confused about.
     
    Posted: Jun 26, 2017 By: Dave0108 Member since: Oct 16, 2015
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  4. Scalloway

    Scalloway UKBF Legend Free Member

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    Your corporation tax liability will be sales less VAT less other costs. Your other costs will be lower as you will be able to reclaim any VAT charged on them.
     
    Posted: Jun 26, 2017 By: Scalloway Member since: Jun 6, 2010
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  5. Dave0108

    Dave0108 UKBF Contributor Free Member

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    I see. So if I understand rightly....

    In the case of VAT Margin Scheme. The VAT is treated more as an "allowable expense"...

    Unlike regular VAT, where it is 20% on top of the selling price, as such it is collecting the Tax directly for the tax man.
     
    Posted: Jun 26, 2017 By: Dave0108 Member since: Oct 16, 2015
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  6. lesvatadvice

    lesvatadvice UKBF Regular Free Member

    798 124
    You always collect VAT for the VAT man! The only difference is how the customer pays for it.
    Simple example: purchase price £50; sale price £200; profit £150.
    VAT = £150 x 1/6 = £25.

    Or, use the Global Accounting Scheme if the purchase prices of single items are less than £500. This allows you to do a single calculation each VAT quarter, AND allows losses to be offset against profits.
     
    Posted: Jun 27, 2017 By: lesvatadvice Member since: Jul 7, 2011
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  7. Dave0108

    Dave0108 UKBF Contributor Free Member

    52 1
    lesvatadvice thanks for replying, I know exactly how to work out the VAT both Margin Scheme or Standard Rate. No issues there. But I am confused about how VAT affects corporate tax liability. See below

    Based on what you have said. Expanding the example...

    A) Purchase price £50.
    B) Sale Price £200.
    C) Profit (Margin) = B - A = £150
    D) Postage, packaging, eBay fees: £25
    E) VAT = £150 x 1/6 = £25.

    CORPORATE TAX LIABILITY:
    Which is correct?

    1. (B - A - D - E) * 0.2 = £20
    2. (B - A - D) * 0.2 = £25
     
    Posted: Jun 27, 2017 By: Dave0108 Member since: Oct 16, 2015
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  8. Scalloway

    Scalloway UKBF Legend Free Member

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    Cancel
     
    Posted: Jun 27, 2017 By: Scalloway Member since: Jun 6, 2010
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  9. Scalloway

    Scalloway UKBF Legend Free Member

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    To look at it another way

    Net sales .........£175
    Cost of sales...... £50
    Fees etc ..............£25
    Net Profit..........£100

    Tax due £20
     
    Posted: Jun 27, 2017 By: Scalloway Member since: Jun 6, 2010
    #9
  10. Dave0108

    Dave0108 UKBF Contributor Free Member

    52 1
    Scalloway,

    Thank you for clearing that up!

    Got it now. Basically VAT must be removed from total receipts before calculating Corporate Tax liability.
     
    Posted: Jun 27, 2017 By: Dave0108 Member since: Oct 16, 2015
    #10
  11. Scalloway

    Scalloway UKBF Legend Free Member

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    Yes turnover should always be shown net of VAT.
     
    Posted: Jun 27, 2017 By: Scalloway Member since: Jun 6, 2010
    #11
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