VAT and Post & Packaging

[albertramsbottom]

Hi

I am a small set up trading on ebay, Amazon, ETSY and I have 5 websites
We have around 350 transactions a week and make a very small percentage from the these transactions.

I am getting near having to register for VAT and need to know about P&P and VAT

basically we dont charge P & P as ebay forces us to do this but we factor in p & p in to the cost of the items. Our postal charges are currently around 60% of our turnover. Do I have to include the postal charges in my VAT calculation as if I did I would be out of business! i.e. £3000 a month on postage equals £600 to the VAT man a month.

I do hope this isnt the case as we cant claim any VAT on postage from RM

Sorry for my ignorance on this subject

 

[David Griffiths]

The VAT treatment of the postage charge follows that of the goods that you are selling. If you are selling standard rated goods, the P&P charge is also standard rated. Zero rated goods means that the P&P is zero rated. It doesn't matter that the payment to the Post Office doesn't carry VAT.

 

[albertramsbottom]

Meaning?

Sorry but this sounds like I will be out of business if I have to register for VAT
An example is that the turnover is around 68000 a year, 40000 is postage, plus 10000 other expenses. So 18000 profit. If I have to pay VAT on postage element of the turnover I am shafted

 

[albertramsbottom]

OK I just had a look around and I belive this to be the case so I have a couple of questions

1. Is VAT a business expense?
2. If so then is it conceivable that what I pay in VAT I can save in TAX? (sole trader)
3. Can I save on VAT costs by using a courier (Claim back VAT)?

Cheers

 

[Scalloway]

If you are VAT registered then all you expenses and sales go through your accounts net of VAT. If you are not VAT registered it is part of your costs. So

1. Yes if you are not VAT registered
2. Yes if you are not VAT registered
3. If you are VAT registered you charge VAT on sales and recover VAT on expenses. It makes no difference to your profit.

 

[albertramsbottom]

I dont think you read the OP as question 3 is related to Royal Mail

 

[Raw Rob]

£3000 a month on postage equals £600 to the VAT man a month.

Maybe you are misunderstanding VAT. You pay to the VAT man the VAT you have charged on sales. Not on what you have paid out. You reclaim the VAT on what you have paid out (although as you say, some RM services don't have VAT on them).

 

[albertramsbottom]

So I can save some money by using my hermes for delivery as an element of the cost is VAT which I can claim back

I cannot claim back the VAT from RM. So if the postal cost is 3.00 with RM then my cost is 3.00 but if its the same with My Hermes then I get back the 0.30p VAT

As for the VAT that I charge on sales, as I suggested will make me noncompetitive on platforms such as ebay, amazon, bonaza, etsy etc.

I sell low value items to the retail industry and do not sell to businesses

Cheers

 

[john1989]

3. If you are VAT registered you charge VAT on sales and recover VAT on expenses. It makes no difference to your profit.

If you are selling B2C and must absorb the VAT, it will of course make a difference to the profit.

 

[john1989]

S

I cannot claim back the VAT from RM. So if the postal cost is 3.00 with RM then my cost is 3.00 but if its the same with My Hermes then I get back the 0.30p VAT

If it is £3.00 with Hermes inclusive of VAT, £0.50 is reclaimable ... £3.00 * 100 / 120 = £2.50 net).

Cheers

 

[albertramsbottom]

Exactly this may put me out of business. I think the only way forward is to keep under the VAT threshold somehow. If I go over I will have to bail out and close. With 60% of the business turnover being Post & Packaging I simply cannot absorb that extra VAT costs.

I have to say to other posters here that its quite naive to say that VAT has no effect as you just pass it to the Tax man

VAT has a huge effect on the B2C industry and will most probably make me uncompetitive

Thanks

 

[john1989]

If you cannot reclaim the VAT on the postage, look at the Flat Rate Scheme. This may soften the blow.

You need to consider if your sales are going to increase. If they are, then the VAT will only have a short-term adverse affect on your business.

At this stage, I'd recommend talking to your accountant to discuss your options in-depth.

 

[albertramsbottom]

Yes good advice

half of our sales are parcels, so swapping to a courier would mean we could reclaim some VAT

Here is a scenario

We sell 80000 widgets at £1.00 each, making 0.10 on each, £8000 profit. We then sell 81000 widgets and go over the VAT threshold. Each widgets costs 0.62 to post using RM. 81000x0.62=50220. 20% of this is roughly 10000

I am out of business

 

[albertramsbottom]

What I am trying to say here is we might be able to absorb the VAT on the goods but as the postage is 3 times that of the actual price of the widget we cannot absorb the VAT element of the postage

Not to mention that the gives RM unfair advantage over other similar services, there must be an EU mandate on this, this has to be illegal

 

[Jeff FV]

Lets take a slightly different tack:

If you do go VAT registered, have you considered using a different Royal Mail service?

If you have an online business account (OBA) with Royal Mail, have you considered changing the service you use to Royal Mail 24 or Royal Mail 48 (code CRL) as these are Vatable services (i.e. you are charged VAT, but if you are VAT registered you can then claim this VAT back). This service will be cheaper than using MyHermes for deliveries under 1Kg (probably under 2Kg)

(If you don't have an OBA, get one, whether or not you are VAT registered. It will save you money.)

HTH

J

 

[Raw Rob]

I just came back to this thread to say exactly what Jeff said above! If you are spending £3000 per month on postage and don't already have a Royal Mail OBA account, you are wasting a lot of money - contact RM asap and get one sorted. You will also qualify for a free collection at that rate. As Jeff said, there are two sets of codes, one with no VAT on the postal charges and the other which has VAT but works out cheaper after you claim the VAT back.

 

[paulears]

Don't forget Parcelforce do give VAT receipts. If you are spending such a large amount on postage, then finding a more cost effective carrier would seem very sensible if your margins are small but turnover high?