VAT for a dummy

[jamesl94]

Hi all, little advice please!

I'm in the process of creating a service which retailers can use through me.

I'm a sole trader and I use 3 separate companies to get this service done, who I pay VAT to each.

Because the VAT has been paid when a retailer sells my service to their customer, will the retailer then have to pay VAT?


James

 

[Newchodge]

You cannot charge VAT unless you are VAT registered. If you are VAT registered you must charge VAT.

When a retailer sells a service to a customer it is the customer who pays VAT, not the retailer. Again, the customer will only have to pay VAT if the retailer is VAT registered.

 

[jamesl94]

Thanks for the swift reply newchodge!

Excuse me for sounding stupid but I didn't really get that! Am I ok to show an example and have that answered?

I pay;

Company 1: £10 (VAT paid)
Company 2: £15 (VAT paid)
Courier: £20 (VAT paid)
Box: £5 (VAT paid)

Total: £50 (cost price)

Sell service to retailer: £80

Profit: £30

Retailer sell service to customer for £100. Profit of £20

Do they pay VAT on this profit?


James

 

[Scalloway]

IF a VAT registered trader makes a sale they must charge VAT as appropriate on the sale, regardless of whether the supplier was VAT registerd or not.

 

[jamesl94]

Dammit, so cost price to the retailer will be £96 instead of £80

 

[Swisaw]

IF a VAT registered trader makes a sale they must charge VAT as appropriate on the sale, regardless of whether the supplier was VAT registerd or not.

I think they don't have to charge VAT but must pay VAT.

 

[richieboy]

It depends on whether the retailer is VAT registered.

So let's assume you are not VAT registered...

If the retailer IS VAT registered...

The retailer's cost is £80 and there's no VAT added on (because you are not VAT registered)
They then sell to the consumer at £100 + 20% VAT = £120 cost to the customer.
The retailer keeps £20 profit for themselves, and pays £20 to the VAT man.

If the retailer is NOT VAT registered...

They sell to the consumer at £100 and don't add any VAT on, and keep £20 profit for themself, and nothing for the VAT man.

 

[Newchodge]

Thanks for the swift reply newchodge!

Excuse me for sounding stupid but I didn't really get that! Am I ok to show an example and have that answered?

I pay;

Company 1: £10 (VAT paid)
Company 2: £15 (VAT paid)
Courier: £20 (VAT paid)
Box: £5 (VAT paid)

Total: £50 (cost price)

Sell service to retailer: £80

Profit: £30

Retailer sell service to customer for £100. Profit of £20

Do they pay VAT on this profit?


James

You pay

Company 1 £8.33 plus VAT of £1.67
Company 2 £12.52 plus VAT of £2.48
Courier £16.66 plus VAT of £3.34
Box £4.17 plus VAT of £0.83

Total cost to you £50

You sell @ £80 (not VAT registered)
or £80 plus Vat £16 = £96 (VAT registered)
or £66.67 plus VAT £13.33 = £80 (VAT registered)

Their sale price depends on whether they are VAT registered.

 

[jamesl94]

So for me to lower the price for the retailer I have to become VAT registered?

 

[richieboy]

If you are VAT registered you can claim back the VAT you have been charged by your suppliers from the VAT man, so the "real" cost to you is £41.67 rather than £50.

So if you want to make £30 profit then it's £41.67 + £30 = £71.67 + £14,.33 VAT = £86
The "real" cost to the retailer then is £71.67 as they will claim £14.33 back from the VAT man.

The consumer at the end of the line ultimately has to pay the VAT and can't claim it back.

 

[10032012]

Hold on. Where are you selling your items... to a market stall trader?

In retail, more times than not, the retailer gets the lion share. I cannot see a retailer selling something costing them £80 for just £100. Generally speaking a product that retails for £100 will rarely cost the retailer more than £40.

If you pull this off, I want to know your secret!

 

[jamesl94]

That's my problem...

So ultimately if they claim the VAT back surely the cost would be £66 not £80?

I know I can make this idea work somehow!

For most retailers what % of a outgoing would they want? Bearing in mind I'm offering a service not a product, they don't have to keep any stock, I do all the hard work.

 

[Deleted member 59730]

If it goes in a box it doesn't sound like a service.

Without knowing what it is I would guess between 55% and 100% markup plus VAT. If its a luxury it could be more.

 

[jamesl94]

It is a service that I provide, can't really say all the details on a business forum!

Surely they would be more willing to make a smaller profit as my service doesn't require them to hold stock for make an investment?

 

[Mike W]

So ultimately if they claim the VAT back surely the cost would be £66 not £80?

They can only claim VAT back if they've been charged VAT in the first place ....and you can't charge them VAT as you are not registered.

Bearing in mind I'm offering a service not a product, they don't have to keep any stock, I do all the hard work.

If they're paying for deals once the deal is done, possibly no problem. If they're paying in advance for something that might happen, not a chance.

 

[jamesl94]

Ok so doing a little number crunching and found the best way is to take the money myself and just give the retailer a commission for each time I get a customer on their behalf.

It's worked out to be £15 per time one of their customers use my service. All the retailer would have to do is put one of my business decals on their window plus keep a stock of leaflets that I will provide in their store.

I'm still unsure as to whether £15 would be enough.

My next question is about the service I do. Bike shops offer services such as chasing of a bottom-bracket (basically re-threading). Most bike shops charge £10 or even £15 for this (if they offer this service). I can do this service at a cost price of £5 and was thinking of charging £20 but feel I'd be treading on the toes of the retailers.