Phone shop - Buyback

[dafcjim]

Hi there,

I am after some advice with regards to how BUYBACK works on records?

I am buying phones on buyback with a weekly charge of 20%.

For example a customer sells their phone to me for £100, and they re purchases for £120 if it is just a week.

Problem i am having is the recording through my epos system. The problem is that when the custom buys the item back i am charging them £120 when the profit7
margin is only £20. So the £120 goes through as sales? - contributing to the sales threshold.

am i recording this incorrectly as im paying out 100 in the first instance.

thanks
Jay

 

[Frank the Insurance guy]

I'm no accountant, but are you putting the £100 in as "purchases". When you then out in a "sale" of £120, the profit will be the difference of £20.

 

[WaveJumper]

Not sure I even understand this business model, could you explain in a little more detail what you are actually trying to achieve. However as Frank suggests your buying something one column, then your selling something another column ...... the bit left over minus your expenses (another column) will if your lucky be your profit

I would suggest investing in some accounting software, a chat with a local accountant and get started off on the right foot

 

[pentel]

If you are operating as you suggest, i.e buying and selling then you will very quickly hit VAT levels. At this point buying for £100 and selling for £120 then the £20 would go to HMRC as VAT.

If you are offering a pawnbroking service I suspect you wont be able to charge such a high rate of interest and would need to abide by these rules re VAY:

VATFIN3180 - Credit, debts and related services: credit and related services: pawnbroking - HMRC internal manual - GOV.UK

www.gov.uk

 

[Waddy]

People that offer this service don't normally keep any records on an epos.

If you're doing this legitimately, I assume you have a consumer credit licence.

I don't know the ins and outs of the the pawnbrokering world, but I assume there are regulations you need to abide by and records you need to keep.

 

[Picture Bute]

People that offer this service don't normally keep any records on an epos.

If you're doing this legitimately, I assume you have a consumer credit licence.

I don't know the ins and outs of the the pawnbrokering world, but I assume there are regulations you need to abide by and records you need to keep.

Buy back and pawnbrokering are two different things. One provides credit (based in an asset) for a set rate of interest and requires a consumer credit licence, the other doesn't.

 

[Shopclicks]

For example a customer sells their phone to me for £100, and they re purchases for £120 if it is just a week.

How long do you keep the phone before selling it? And do they keep their sim (which may be tied to a contract)?

 

[MikeJ]

If you are operating as you suggest, i.e buying and selling then you will very quickly hit VAT levels. At this point buying for £100 and selling for £120 then the £20 would go to HMRC as VAT.

There's a special VAT scheme for dealing in second hand goods.

VAT Margin Scheme for Second-Hand Goods | Lovat Compliance

The margin scheme is a special VAT scheme for entrepreneurs who trade in used goods. A guide to the second-hand goods scheme in the EU: the rules, find out which businesses are eligible to join and how to benefit from the scheme.

vatcompliance.co

 

[Waddy]

Buy back and pawnbrokering are two different things. One provides credit (based in an asset) for a set rate of interest and requires a consumer credit licence, the other doesn't.

It's not my area of expertise, so I don't really understand the difference. From your explanation it just seems like buyback is unregulated pawnbrokering.

 

[pentel]

I think the 20% per week increase in the buy back cost muddies the waters on this.

 

[ChrisCallaghan]

Buy back and pawnbrokering are two different things. One provides credit (based in an asset) for a set rate of interest and requires a consumer credit licence, the other doesn't.

Many many moons ago I used to work for a Cash Generator franchise, and this is (or at least was!) an important distinction. BuyBack essentially means that the customers sells their item, with the buyer offering them the option to buy the item back for an agreed price. Consumer Credit Licence wasn't required in my day, because no lending is occurring.

For that reason (though I'm not an accountant) I suspect recording purchases and sales for profit calculation is no different than if you had bought from one party and sold to a completely different party. That being said, this is something worth getting right from day one, so I would suggest taking formal advice from an accountant.

 

[Picture Bute]

Many many moons ago I used to work for a Cash Generator franchise, and this is (or at least was!) an important distinction. BuyBack essentially means that the customers sells their item, with the buyer offering them the option to buy the item back for an agreed price. Consumer Credit Licence wasn't required in my day, because no lending is occurring.

For that reason (though I'm not an accountant) I suspect recording purchases and sales for profit calculation is no different than if you had bought from one party and sold to a completely different party. That being said, this is something worth getting right from day one, so I would suggest taking formal advice from an accountant.

Absolutely this. Especially if the OP is VAT registered. If he buys a phone from a member of the public for £100 and sells it back to him a week later for £120, how much has he made ?

 

[Picture Bute]

It's not my area of expertise, so I don't really understand the difference. From your explanation it just seems like buyback is unregulated pawnbrokering.

You could describe it as that, but there are lots of differences in the way the 'deals' progress.

With buy back, the buyer guarantees to sell back at a fixed price before a fixed deadline. With pawn, customers can pay the interest continually and not pay off any principal, with the broker holding the asset as security, a bit like an interest only mortgage, or they can pay off a mixture of interest and principal, or redeem both, like a normal mortgage. i.e. there are options. With but back you have xx days to buy back or you lose the item. (or concievably have to buy it back at a later date at retail).

 

[ChrisCallaghan]

When I worked at Cash Generator we'd typically agree to buy an item for 40% of the value we could sell it for, with an option to buy it back for 33% more than we bought if for.

For example, if a laptop can be sold in store for £250, we'd offer £100 on buy back. If they came and bought it back within 30 days, then that would cost them £133. OR (and this was where the store made more) they could just pay the difference, £33, for us to have held onto the item for another 30 days. They could choose to do the same the following month, and so on and so on.

Going back to the OPs query, the franchise group I worked for designed a bespoke EPOS system for their group of stores. I don't think a bog standard EPOS would ever be able to handle Buy Back agreements.

All of the above being said, my experience is from nearly a decade ago and may be highly out of date!

 

[japancool]

Absolutely this. Especially if the OP is VAT registered. If he buys a phone from a member of the public for £100 and sells it back to him a week later for £120, how much has he made ?

£16.66, if he uses the VAT margin scheme.

Although I note the OP hasn't bothered to respond.

 

[Paul Kelly ICHYB]

Reading the whole thread and now thinking I understand it more, the answer (not working with VAT) is:

I'm no accountant, but are you putting the £100 in as "purchases". When you then out in a "sale" of £120, the profit will be the difference of £20.

 

[ChrisCallaghan]

I keep getting drawn to this thread, even though the OP is nowhere to be seen! ?

I think the bigger accounting question is how any rollover fees are classed from an accounting perspective. i.e. if customer comes back at the end of the week, can't afford to buy back their phone, and pays the £20 difference to roll it over for another week.

 

[dafcjim]

thank you for you reply's, sorry I was away. It's given me a lot of thought!