POR and VAT

[Alex MacDonald]

Any help much appreciated.

I am a non VAT registered business and I am having trouble understanding something quite basic.

If my customer sells product X for £1.19 and bought it for £0.68 do they make a 42% margin (1.19 - 0.68 = 0.51. 0.51/1.19 X 100 = 42%)?

If so, why then does my competitor's website say that the margin for this product at these exact prices is 31%? Am I missing something basic to do with VAT?

On the Kellogs Vantage POR calculator (cannot display link), the margin differs on VAT and non VAT
Case cost: 16.29
Units 24
Retail per unit £1.19

Non VAT returns as 42%
VAT margin is 31%
I do not understand why this is.

Question 2:

Is my customer much better off buying from me because I am not VAT registered compared to a business which is?

Will this explain the margin change above?

 

[vivente]

The VAT registered business has to hand over 20% of the sale price to HMRC (though they can set that against any VAT they are allowed to reclaim from purchases, including the purchase of this product) therefore to calculate the margin the buyer needs to net out the VAT to see what his/her real income is:

£1.19 / 1.2 = 99p (exc VAT). So same calc as for Non VAT registered business now:

99p - 68p = 31p / 99p = 31% margin

That of course assumes that the price quoted for purchase price is VAT exclusive. If it's not this is not comparing like with like and the difference is very, very marginal.

As to 2 those margins are based on what your retailer will get based on their VAT registration status and not yours however there is a implicit assumption that you are VAT registered in those calculations. If you aren't then that £16.29 will be plus VAT which means you would actually be selling that case to your retailer at £19.55. That doesn't matter if the retailer is also not VAT registered as they would be getting charged that anyway even from a VAT registered business but if they are VAT registered then you are considerably more expensive.

Hope that makes sense.