VAT on Postage

[JohnDet]

We just bought some till rolls from eBay, total sale GBP4.00, which is what we paid, via pay pal

We got a receipt with them, like this :

Goods GBP2.56
Post GBP1.00
Sub Total GBP3.56
VAT GBP0.45

[I know it's a penny out ]

We are a VAT registered business, and would sell this as GBP4.00, and give HMRC GBP0.60, subtract our product and post costs net of VAT, and calculate our profit.

Would be cross if we are needlessly giving away profit as a VAT payment

Are they right to calculate their invoices like this ?

 

[KidsBeeHappy]

No. (just checked the maths!)

The post is part of the service of selling you the product, and can't be seperated out.

It should be subtotal x .175 = VAT. = 62p.

But doesn't make any difference to your profit because if they'd done it right you'd have paid more in the first place, and then recovered more.

 

[Jenni384]

The VAT on postage follows the supply of the goods.

So if they are selling standard rated goods, they should charge standard rated VAT on the postage element.

If they are selling zero rated goods, they should charge 0% VAT on the postage.

Post is exempt when buying from the Post Office. When it's 're-sold' the rules above apply.

 

[alanc]

The VAT on postage is also pro-rata the VAT on the contents, so if the item was a book, the VAT would be at the same rate (ie. exempt, therefore zero).

If the parcel contains a mixture of VATable items, all hell breaks loose (VAT is calculated in proportion to contents).

(Pipped to the post by the expert)

 

[JohnDet]

Surely VAT is coming off the total sale = 60p

 

[JohnDet]

So, with a total sale of GBP4.00, this firm is short changing HMRC, and would be in trouble if found out

 

[Jenni384]

Goods GBP2.56
Post GBP1.00
Sub Total GBP3.56
VAT GBP0.45

[I know it's a penny out ]

We are a VAT registered business, and would sell this as GBP4.00, and give HMRC GBP0.60, subtract our product and post costs net of VAT, and calculate our profit.

Ok, so I don't get away with not doing the maths

They are only charging VAT on the goods, not the postage. They are wrong to do this. They should be charging you 2.56 + 1.00 + 62p VAT, total £4.18

As they got it wrong, that's their lookout and you should record the input VAT as per their invoice. You might want to tell them though (up to you).

 

[alanc]

Personally, I ignore VAT when calculating profit. VAT is not 'your' money and you usually have more VAT income (sales) than outgoings (purchases). The difference just goes to HRMC.

 

[Jenni384]

So, with a total sale of GBP4.00, this firm is short changing HMRC, and would be in trouble if found out

Yes that's about the size of it

 

[KidsBeeHappy]

Yes that's about the size of it

HMR&C would love it!! It would give them the excuse to look at every sales transaction for the last 3 years. They'd move in!!

 

[alanc]

It's a surprisingly common myth that postage is free of VAT (presumably because there is no VAT on stamps). Every now and then I get an email from a customer complaining that I'm charging VAT on P&P.

 

[Jaydee]

While the VAT just washes through a VAT registered business (well one that is not using the FRS at least), the OP has been financially penalised by the supplier's mistake.

Purchasing something for £4 including VAT, there would be an expectation that this would result in an expense of £3.40 (at 40/47ths) not the £3.56 that it has resulted in.

 

[Thermostat]

From my experience of having the HMR&C they apply formulae to your books.
Use another formulae on your accounts and if its within their tolerances they are A1 OK.
I was told this by a nice Inspector as she was going through the paperwork, not even interested in the small bills.