Of course you pay VAT on your stock. You claim back on your VAT return and it's set against the sale price you sold the goods for.
Are you sure this isn't a wind up?
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Understanding VAT
- Thread starter Farley93
- Start date
Of course you pay VAT on your stock. You claim back on your VAT return and it's set against the sale price you sold the goods for.
Are you sure this isn't a wind up?
VAT is a sales tax, it is not related to profit.
I don't know if it's just the way you are thinking about it. When you say:
"If you make a profit buying and selling something (assuming you're VAT registered of course which is the premise being used here) then you pay the residual VAT to HMRC."
I am physically paying it to HMRC but it's the customer that is actually paying it, I am just collecting it from the customer on behalf of HMRC.
However this still does not explain why you think HMRC receive and retain a portion of VAT at each stage of the supply chain.
How have you paid £20? Why aren't you reclaiming it?
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SuffolkDesigns
Because I charge £40 VAT when I sell the item and claim back the £20 VAT I paid when I bought it.
£40 - £20 = £20 that has to be paid.
It makes no difference to me if you are VAT registered or not, or if you are the end user or not. That is for you and your accounting to sort out, I must sill pay VAT
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Of course it's related to profit. You pay VAT on the difference between what you pay and what you sell for.
The difference between what you pay and what you sell for is some kind of ...errr.. what's it called? Oh I know - profit.
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SuffolkDesigns
They will pay it to me, and I will pay it to HMRC
They will claim it back through their VAT account, not mine.
So as long as they have the item in stock their VAT account is -£20 and mine is +£20 so HMRC are no better off, however I have still paid the £20 VAT.
When they sell the item they will then have to pay the VAT they collect (lets say £80) which would give them a VAT balance of +£60 to be paid
Therefore, if they sold it to the end user who paid £80 in VAT then the HMRC receives a total of £80 in VAT, £20 of which came from me and £60 from them (£80 - £20)
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I never knew people found it so hard to understand VAT
A factory makes a pen sellng it to a suppler
The supplier prints a logo on it then puts it up for sale
A customer buys it
The factory makes the pen for 10p and charges 2p VAT.
The supplier pays 12p for the pen - 2p is sent by the factory to HRMC as VAT.
The supplier prints a logo on the pen and its now worth 20p with 4p VAT.
The customer buys the pen for 24p - the supplier sends 2p to HRMC as VAT.
The 4p VAT received by HRMC is -
1. 2p from the factory
1. 2p from the supplier
The VAT sent to HRMC at each stage (except the last) is the VAT on the value they added in the chain.
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You can relate it to profits in your calculations if you want but the VAT is charged on sales. VAT is not a tax on profit.
You didn't pay the £20, your buyer did. I know you physically paid it but it was never your money, you just collected it from your buyer on behalf of HMRC.
Correct. But ultimately that 4p has been collected from the end customer.
The key point is when you charge VAT you are just collecting it for HMRC, it's not your money.
I understand VAT fine thanks.
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Really? Your VAT bill relates to the difference in a quarter between your sales and your purchases. I'm sure we'll both agree on that.
Yes strictly speaking it's a sales tax. That's if you want to start splitting hairs at this stage to deflect attention from your previous assertions. However it's calculated based upon the difference between what you paid for something and what you sold it for.
I'm using UK only here (which everyone else has too so far) because import and export throws a whole new can of worms into the mix.
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Yes I agree on that but I don't think saying it relates to sales is splitting hairs because you have suggested that every VAT registered person in the supply chain is paying VAT from their profits. They are only paying it from the VAT they have collected from their customers. The end customer/consumer/non VAT registered business is the only one who actually pays the VAT. Everyone else is just collecting it.
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Thats wrong
Factory (Cost of product £10, VAT to be charged £2)
Supplier (Value added £10, new cost £20, VAT to be charged £4)
Retailer (Value added £10, new cost £30, VAT to be charged £6)
Customer (Pays £36 for item in shop)
The factory sends £2 collected from the supplier to HRMC
The supplier sends £2 collected from the retailer to HRMC keeping the other £2
The retailer sends £2 collected from the customer to HRMC keeping the other £4
In the above example it can look like the customer pays all the VAT and it is refunded back up the value chain but thats because of the example.
If the retailer had a clearance sale reducing the item to £10 they dont recover enough VAT from the customer to cover the VAT they paid to the supplier. Also if the business sells items like gold rings then due to the price instability of gold the VAT will vary.
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SuffolkDesigns
No, And this will be my last post because it is boring repeating it all the time.
If I buy an item for £100+VAT & sell it to you for £200+VAT then I will pay £20 VAT (£40 I charged you less £20 I claimed back)
Now, It doesn;t matter if you sell this product on to 10 people before it reaches an end user or if you leave it in your stock, or if you throw it away, I have still paid £20 in VAT.
Lets say you have it in stock for 1 year then sell it for £1+VAT
You will have, on this item, £-39.80 VAT as you claimed back £40 VAT and charges £0.20. This is in YOUR accounts and has no relation to my accounts at all. I would have still paid £20 VAT
If you want to be pedantic about it you could argue that HMRC has lost VAT on this item, but the truth of the matter is that HMRC does not follow individual items around chasing VAT, they want to know how much you bought (your Input VAT) how much you sold (your output VAT) and for you to pay the VAT on the difference.
If input tax is greater than output tax then you can claim back money from HMRC.
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crphillips
Really glad you guys cleared up the OP's post on 'understanding VAT' 
Vat is paid throughout all stages of the sale from manufacturer to the end consumer. The fact that the retailer sold at a loss does mean that In simple terms HMRC didn't make any money but VAT was still paid throughout all stages. They'll likely have this money in their account for at least 3 months. Seen as HMRC will get paid interest on this money then they'll be quids in regardless.
Works well for me as I buy firewood at 20% VAT but sell at 5% VAT!
Vat is paid throughout all stages of the sale from manufacturer to the end consumer. The fact that the retailer sold at a loss does mean that In simple terms HMRC didn't make any money but VAT was still paid throughout all stages. They'll likely have this money in their account for at least 3 months. Seen as HMRC will get paid interest on this money then they'll be quids in regardless.
Works well for me as I buy firewood at 20% VAT but sell at 5% VAT!
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If the retailer sells for £10, they will receive VAT of £1.67. They will still reclaim £4 so will receive a repayment from HMRC of £2.33.
I think the only issue we disagree on is that you think when I pay you £200 + VAT @ £40 you think that £40 is yours. It isn't. It's HMRC's money, you are only collecting it for them. It is me that pays that VAT, not you, albeit you are the one sending it to them.
Source: http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/index_en.htm
You only pay them £20 because they already owe you £20. Then that's you squared up. You have not been taxed.
HMRC don't lose money, even if you sell it for £1 they get £0.17.
From the same link above it couldn't be clearer:
Is anyone still going to dispute this?
As an aside the VAT guide itself states that "VAT is a tax on consumer expenditure. It is collected on business transactions, imports and acquisitions."
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What a nit picking argument. I suspect all posters here know about VAT and pay the correct amount.
I must confess I definitely dispute
"Value aded tax is:
a consumption tax because it is borne ultimately by the final consumer. It is not a charge on businesses."
If HMRC think it costs me nothing to account for VAT and pay them, then they are insane.
I must confess I definitely dispute
"Value aded tax is:
a consumption tax because it is borne ultimately by the final consumer. It is not a charge on businesses."
If HMRC think it costs me nothing to account for VAT and pay them, then they are insane.
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thomastheplank
I agree, I'm dumbfounded at the number of supposed business people that don't understand how their vat return is calculated.
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thomastheplank
Listen Sir, until you reach the end consumer the VAT you pay HMRC is reclaimed by the next person in the chain.
If you pay £20,000 a quarter in VAT your clients are claiming back that VAT on the invoices you have issued. HMRC have zero.
Is it really that difficult to grasp?
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An amusing little argument that has, no doubt, made the OP feel quite right to ask the question in the first place.
Like Kulture, I am amazed at the arrogance of the government in claiming this is not a tax on businesses - the time spent, the grief and hassle as well as the accountants charges means that it is just that. I detest being an unpaid tax collector and being treated like dirt for being so. They will be saying next that they don't charge us for employing people........
Like Kulture, I am amazed at the arrogance of the government in claiming this is not a tax on businesses - the time spent, the grief and hassle as well as the accountants charges means that it is just that. I detest being an unpaid tax collector and being treated like dirt for being so. They will be saying next that they don't charge us for employing people........
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thomastheplank
The retailer at no point paid VAT on any goods. How much simple does it have to be explained?
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thomastheplank
There's a whole army of unpaid tax collectors out there, most just sending money round in circles for the sake of it.
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Every step pays VAT on the value they added and then tries to recover it off the next step.
Imagine a business buys some gold at £1000 + £200 VAT. They make a necklace putting it on sale for £2000 + £400 VAT. The necklace doesnt sell and the gold market crashes. The necklace is finally sold at £500 + £100 VAT.
In my example the business failed to recover enough off the customer to offset its own VAT liability to HRMC. My example high-lights the flaw in your logic.
You pay VAT to HMRC on the value you added in the chain. You can pass it on to your customer if you wish but its you that paid the VAT.
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They don't recover it off the next step. They recover it from HMRC. In your example if that was the only purchase and sale falling withing the same VAT quarter the business would receive a repayment of £100 from HMRC.
If they don't sell that necklace in the same VAT quarter they will receive £200 from HMRC. But then will have to pay HMRC £100 when they do sell it.
The only reason it might appear the business recovers VAT off the next step is because you only pay HMRC (or vice versa) the difference of what they owe you and you owe them.
Again I am talking about standard VAT accounting.
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