VAT Calculation Advice...

[rayjay01]

I'm currently working on a project in the hope of starting a small e-commerce store selling some goods that I produce.

I must admit that I am quite a 'newbie' when it comes to business - i've managed to grasp most things, but I'm also learning a lot as I go along.

I've created a spreadsheet in excel, which, i hope, calculates the profitability of each unit at various stages i.e after tax, p&p, processing fees, etc.

It's just the VAT element that concerns me. As after doing a lot of research myself, I know that VAT can be the one to catch you out, plus end up costing you a lot of money.

As far as I can see everything adds up. I sum all VAT Output and then sum all VAT Input, then subtract Output from Input. But I'm still concerned that I may have miscalculated somewhere along the way.

That being said, I thought two minds would be greater than one, so I thought I would come here and ask for a second opinion on whether the calculations really do add up...

Is there anyway to attach an excel file to posts? or link it somehow? It's only a small file containing one row of information as the example calc.

Thanks in advance!

 

[rayjay01]

Ok, I have found an easier way. I have transposed the data so it can fit into here... Would really appreciate confirmation of the example...



Minimum Unit Sale QTY 1.00
4. Unit Purchase Expense (As Listed) 4.79
Total Purchase Cost 5.75
VAT OUTPUT 0.96
PayPal Processing Fee 3.40% +20p (from end sale price £14.21)
PayPal Fee Amount £ 0.68
Misc Expenses £ 0.00
Total Associated Expenses 0.68
VAT OUTPUT 0.00
RRP (As Listed) 8.69
Unit Sale Price (excl. VAT) 7.24
Price Adjustments/Charges 0.00
Unit Sale Price (inc. VAT) 8.69
Unit Sale Price (TOTAL inc P&P) 14.21
VAT INPUT 1.45
4. Gross Postage Expense per Unit (Individual) 5.28
Postage Expense 4.40
VAT OUTPUT 0.88
4. Gross Packaging Cost per Unit (Individual) 0.24
Packaging Expense 0.20
VAT OUTPUT 0.04
4. Gross P&P Charge per Unit (Individual) 5.52
P&P Charge 4.60
VAT INPUT 0.92
TOTAL P&P EXPENSES 4.60
TOTAL EXPENSES 12.19
TOTAL VAT OUTPUT 1.88
TOTAL VAT INPUT 2.37
END VAT BALANCE -0.49
P&P PROFIT / LOSS 0.00
END PROFIT / LOSS 0.32 (after VAT balance deduction/claim)

 

[faradaykeynes]

Vat out put is on sales and input is on purchases. You do not need to vat register from day one. If you are B2c then it makes sense to generally hold on to be vat registered till you near threshold of 81K for last 12 month. Once you are vat registered then profitability works on net of vat value else you need to take purchases as gross i.e including vat

 

[rayjay01]

That's a good start! aha. Sorry about that. I think it's because when I first learnt about VAT i somehow managed to convince myself it was the other way around, so it became a habit.

That's what I thought, but I found a lot of suppliers are reluctant to have anything to do with you unless you're, at least, VAT registered. It seems like a bit of a catch 22 situation?

I must admit, I didn't quite understand what you meant at the end of your post?

 

[faradaykeynes]

If you have to register for vat to buy stuff then you have to charge vat to your customers a swell
Best is work out your profitability using 3 columns
Net Vat Gross
100 20 120
use net figures to work out your profit, any vat values are not part of your profit and you are mere agent of HMRC to collect vat from end users to pay to HMRC after deducting vat on your own expenses.

 

[Scalloway]

You show postage expense as having VAT charged on it. If you use Royal Mail it will be exempt. However you will need to charge your customer VAT on postage.

 

[rayjay01]

I can understand that aspect of things, having to pass the charge onto customers. Do you mean the calculations above are incorrect? or that's the way I should do it?

If I focus only on the net value for everything, where is the vat column going if i'm not registered? I'm quite confused...

I was under the impression that registering for VAT meant that you could then recoup for what you paid out to suppliers? I haven't done calculations without vat deductions, but wouldn't it come out at an even lower profit?

 

[rayjay01]

Hi Scalloway,

I did check that out. Unfortunately a few items such as the example above, would be too heavy for RM, but I have a found a quite cheap alternative considering the size and weight.

I thought I had charged for VAT though? Total postage in that example is £5.52 (£4.60 charge + 0.92p VAT) balancing out the VAT I originally paid (0.88 + 0.04p).

 

[rayjay01]

Ah, I think I know what you mean now, faraday. That's something I swapped around a few times as I was unsure whether to take it from gross. I'm still a bit unsure about the VAT element though...

 

[faradaykeynes]

Example
You buy as follows
Purchase net 100
vat on purchase 20
Gross purchases 120
postage to you cost net 10
vat on postage to you 2
gross postage 12

total input vat 20+2=22

Now selling items
net sale 150
vat on sale 30
gross sale 180

net Postage to customer 15
vat on postage 3
gross postage 18
output vat 30+3=33

Net vat payable to HMRC = 33-22=11

Profit = Sale less cost = (150+15) - (100+10) = 55

 

[rayjay01]

Thanks Faraday

I updated everything as recommended, I did have it that way around at one point, honest! haha. It just seemed like too much profit, so I began to question my calculations and ended up with something that seemed more realistic, but apparently wrong!

 

[kelvin1950]

That's a good start! aha. Sorry about that. I think it's because when I first learnt about VAT i somehow managed to convince myself it was the other way around, so it became a habit.

That's what I thought, but I found a lot of suppliers are reluctant to have anything to do with you unless you're, at least, VAT registered. It seems like a bit of a catch 22 situation?

I must admit, I didn't quite understand what you meant at the end of your post?

What line of business? We're not vat registered and our suppliers seem happy to take our money. Doesn't make any odds to them if you're registered or not if you think about it.

 

[rayjay01]

Kelvin, I don't think it's because of any loses on their part, as you said, it doesn't have any effect on them. I think its more to do with the perception of businesses that aren't registered, opposed to those who are. The fact you aren't registered immediately rings alarm bells that turnover doesn't exceed the 80k requirement.

When you are registered, you look more established and 'professional' in their eyes, that's what I I presume anyway. Perhaps I'm wrong, maybe it was something I said! lol. It is a good indication of where the business is though. The fact I'm only just starting up is proving to be difficult as well!

 

[kelvin1950]

Kelvin, I don't think it's because of any loses on their part, as you said, it doesn't have any effect on them. I think its more to do with the perception of businesses that aren't registered, opposed to those who are. The fact you aren't registered immediately rings alarm bells that turnover doesn't exceed the 80k requirement.

When you are registered, you look more established and 'professional' in their eyes, that's what I I presume anyway. Perhaps I'm wrong, maybe it was something I said! lol. It is a good indication of where the business is though. The fact I'm only just starting up is proving to be difficult as well!

I'd have to repeat my comment. As far as I've experienced, it makes no difference at all.

 

[jplevene]

With VAT it is very important:

DO NOT WORK USING A VAT INCLUSIVE PRICE IN YOUR TAKINGS ALWAYS WORK ON NET

If you buy a widget at £1.20 inc VAT - NET = £1.00
You buy a button for your widget at £1.00 with no VAT - NET = £1.00

You now know that to make your thing out of a button and a widget costs you £2.00, you must sell it for more than £2.00 and then add on the VAT.

You must always do costings using NET (not including VAT) and never GROSS (includes VAT). Just remember to always add on VAT to your final price:

£5.00 NET + VAT = £5.00 x 1.20 = £6.00 inc VAT