Simple VAT question

[mediakitchen]

I would like to quote prices for advertising on my site inclusive of VAT. Now I would like to quote a nice simple amount such as £5 or £6 per month (inc VAT).

However these values will give rise to a VAT amount that is not a whole number.

Is there a rule regarding rounding up or rounding down percentages?

For example, if I charged £6 including VAT, as far as my calculations have worked out, the VAT would be:
78.260869565217391304347826086957

Would it be acceptable to quote £0.78 for the VAT amount here?

 

[Zeno]

I would like to quote prices for advertising on my site inclusive of VAT. Now I would like to quote a nice simple amount such as £5 or £6 per month (inc VAT).

However these values will give rise to a VAT amount that is not a whole number.

Is there a rule regarding rounding up or rounding down percentages?

For example, if I charged £6 including VAT, as far as my calculations have worked out, the VAT would be:
78.260869565217391304347826086957

Would it be acceptable to quote £0.78 for the VAT amount here?

I think if you are really lucky HMRC might just accept this.

 

[mediakitchen]

Serious? I would be concerned that I could be ripping them off for 0.26 pence in every sale. I have heard they are penny pinchers!

 

[Jetlag]

I always round up. It's better to pay too much than too little, come vat inspection time.

The VAT rate is 15% atm, isn't it?

So 15% of £6 is 90p.

But let's take £8.23 inc. That would be £1.2345 VAT.

I'd price that as £6.99 + 1.24.

 

[mediakitchen]

Thinking about it, I suppose I can always make up the shortfall when I pay my VAT. So if for example I did round the VAT to my customers down by 0.26 pence on 100 orders, then can I just pay the 26 pence or am I legally required to charge my customers the full 78.26 pence?

 

[Maslins]

What you're suggesting is fine.

There is an ongoing case going through the courts at the moment pretty much revolving around this very issue. It was brought to attention due to supermarkets. They sell lots of low value items, many of which have VAT on. Rounding VAT has meant £millions at stake.

 

[Zeno]

What you're suggesting is fine.

There is an ongoing case going through the courts at the moment pretty much revolving around this very issue. It was brought to attention due to supermarkets. They sell lots of low value items, many of which have VAT on. Rounding VAT has meant £millions at stake.

I have heard rumours surrounding this but had dismissed it as an accounting urban myth.

 

[mediakitchen]

Yes I thought it could be an issue as for large companies with many orders, one million times 0.26 pence could add up to a reasonable sum - a sum that I sure wouldn't say no to so I am sure mister tax man would share the same sentiments

 

[Zeno]

Yes I thought it could be an issue as for large companies with many orders, one million times 0.26 pence could add up to a reasonable sum - a sum that I sure wouldn't say no to so I am sure mister tax man would share the same sentiments

I would find other things to worry about if I were you. Your Vat return only has space for two decimal places anyway.

 

[3pic]

If you sent your client an invoice for the £6 charged, you would show :-

Basic charge = £5.22
VAT @ 15% = £0.78
Total due = £6.00

You wouldn't show the VAT as being 0.7826 as the customer cannot phsyically pay you 0.26 of a penny.

So you would round down in this scenario.

I would generally adopt the common approach of rounding down if .5 or below and rounding up if over .5 - it probably doesn't make much difference on such a small scale but would on high turnovers.

Indeed, ToppsTiles lost in the EU by trying to round everything down, HMRC winning the logic that the taxpayer should roundup/down as per common practice (ie, as above)

It may seem like a silly question but this is a BIG topic in the world of VAT as for large corporations, there can be significant VAT savings in totting up all those 0.001p's which is ToppsTile chanced their arm on it.

For those really interested in it, this is an interesting article about a Dutch retailer similar in size to Asda. I'm unconnected with the article, but it describes the issue in good detail :-

http://www.tax.org.uk/attach.pl/5450/5752/029-030_TA_0407.pdf
http://www.eoy.co.uk/global/assets....'s Opinion in Retailers VAT Rounding Case.pdf

 

[mediakitchen]

Don't worry, plenty of other things to worry about. I am realising designing, developing and launching a business online is quite a lot of work and involves loads of decisions and research into areas I have never before had to deal with.

 

[fathippy]

I think the answer must somewhere be well-defined and not guesswork, otherwise any company that sells eg, nails or screws or penny sweets for anything between 0 and 10p, could break down their invoicing into individual items and avoid VAT altogether...

It may sound stupid at first, but if you were to order 100,000 penny sweets for £1000 and be liable for £1150 inc VAT, then 100,000 individual orders at 1p net 1p gross would only cost £1000 in total ! Even splitting into 10 at a time with 1p VAT would save £50 on 10,000 invoices.

The obvious answer is that the cost of printing invoices outweighs this, but surely in this day and age it can be done electronically and emailed to the recipient.

Therefore, given the ability for anything like this to be abused, the likelihood is that there is an exact treatment hidden away somewhere in the small print....

 

[3pic]

You didn't read my link now did you FatHippy?. ()

The VAT law does not specify how to treat roundings and the ECJ have left it to individual countries to determine what they should and shouldn't do.

ToppsTile have tried it, JD Weatherspoon also tried to breakdown a round of drinks into individidual purchases (ie, you buy 10 beers, JDW treat as 10 drinks/purchases rather than 1 round of 10 drinks as the roundings make a few pence in their favour and multiply that over all their pubs!).

 

[yorkshirejames]

I seem to remember being told many years ago that there was the ability to be slightly 'out' with VAT calculations.

The typical scenario was an invoice with 10 items of it. Some companies might work out the VAT on each item and then add them, others might work out the VAT on the nett total.