Wholesale Retailer VAT Question

[saitojon]

Hey all!

I'm a little stumped with my calculations and just want to get a solid anwser from it, I'll try and keep it simple.

I am a business looking to sell wholesale prices to a retailer to stock my product in their store.

We are both VAT registered.

The RRP on my product is £10, I will be selling for this price and would like to the retailer to sell for this price.

The cost of goods = £1.03 (ex.VAT & inc.VAT) It's from China.

I will be selling X amount of units to them at £5.40 inc.VAT - Making my profit £3.47 with a margin of 77.11%

• As I understand I sell for £5.40/1.2 (20% VAT) = £4.50 minus cost of goods = £3.47 profit (77.11%)

The retailer have said they work on a margin of around 35-50%, and this is where I start to get confused with the correct calculations.

They sell for RRP £10 / 1.2 (20% VAT) = £8.33 minus cost of goods = £2.93 profit (54.32%)

• BUT, they can claim the VAT back on the £5.40 meaning they're only paying £4.50 per unit, meaning their profit is now £3.83 (70.93%)

Ideally, I'd like their post VAT claim margin to be around 50%.

Which would like it:

• RRP £10
• Cost of goods to me = £1.03
• Cost of goods to retailer = £6.15
• Pre-VAT Claim Profit £2.18 (35.5%)
• Post-VAT Claim Profit £3.20 (52.03)

Am I massively overcomplicating this or totally misunderstanding? Just looking for a simplified baseline I can whack into my google sheets to follow, fully understand and apply to future products.

Many thanks

 

[japancool]

Forget VAT in all your calculations.

They buy for £4.50. They sell for £8.33. Their profit = £3.83. Their margin is 45.9%.

The cost of goods to you is irrelevant to them.

 

[saitojon]

Forget VAT in all your calculations.

They buy for £4.50. They sell for £8.33. Their profit = £3.83. Their margin is 45.9%.

The cost of goods to you is irrelevant to them.

So would this now look correct?
ibb.co/C6KHB6w <--- Image hoster

 

[japancool]

So would this now look correct?
ibb.co/C6KHB6w <--- Image hoster

Sorry, I don't do external links.

 

[saitojon]

Sorry, I don't do external links.

 

[saitojon]

Here we go instead!

RRP = £10
Cost of goods to me = £1.03

Wholesale CPU ex.VAT: £4.50
Retailer Profit: £3.83
Retailer Margin: 46%
My Profit: £3.47
My Margin: 77.11%

If my cost of goods ever have VAT, should I always be using the ex VAT cost as well there to give better margins to myself?

 

[japancool]

It's correct, except your RRP is not £10. It is 8.33.

Why do the goods not include VAT? Do they fall under a VAT exempt category like educational materials?

 

[saitojon]

The cost of goods to me (£1.03) are from China so are Zero rated!

 

[japancool]

The cost of goods to me (£1.03) are from China so are Zero rated!

Err... no they're not. They may have no *duty* on them, but if they would attract VAT in the UK, then they will attract VAT on import. The fact that you're selling them inc VAT would suggest that they are VATable goods.

You may be using PVA, so you don't pay the VAT on import.

Nonetheless, it doesn't matter. If you're VAT registered, you would claim the VAT back anyway, so it has no net effect - but if you're under the impression that goods are VAT-free because they come from China, I'm afraid that's not correct.

 

[WaveJumper]

Oh dear and now i wonder with all the shipping costs etc etc are the goods really £1.03

 

[saitojon]

Err... no they're not. They may have no *duty* on them, but if they would attract VAT in the UK, then they will attract VAT on import. The fact that you're selling them inc VAT would suggest that they are VATable goods.

You may be using PVA, so you don't pay the VAT on import.

Nonetheless, it doesn't matter. If you're VAT registered, you would claim the VAT back anyway, so it has no net effect - but if you're under the impression that goods are VAT-free because they come from China, I'm afraid that's not correct.

Oh dear and now i wonder with all the shipping costs etc etc are the goods really £1.03

Yeah, total cost of goods + air freight comes to £1.03 per unit. There was no import duty as they declared the value of goods to £0, Should I be concerned about this? Or consider myself lucky?

I've had imported goods personally before, and always had to pay some form of duty on that, but B2B I was a little confused as to why I had paid nothing, never asked them to declare £0 value.

 

[japancool]

Yeah, total cost of goods + air freight comes to £1.03 per unit. There was no import duty as they declared the value of goods to £0, Should I be concerned about this?

Yes, you should. If you're ever inspected, this could well become an issue. It's your responsibility, as the importer to ensure that your goods are properly declared. You wouldn't want HMRC coming after you for misdeclaration of goods, which could lead to a fine, a prison sentence, or both.

Ultimately, it makes no difference to you whether there's VAT or not, since you are VAT registered. If you use PVA, you don't even need to pay it.

Tell your suppliers to declare the goods properly.

 

[Newchodge]

The RRP on my product is £10, I will be selling for this price and would like to the retailer to sell for this price.

If the retailer sells at the same price, £10, that you sell to them, they make nothing. COuld you be a little clearer, please.

 

[saitojon]

If the retailer sells at the same price, £10, that you sell to them, they make nothing. COuld you be a little clearer, please.

I think it's all been cleared above now.

Essentially I pay £1.03, sell for £4.50 to the retailer, both of us sell for £10. We both have profitable margins.

 

[saitojon]

Yes, you should. If you're ever inspected, this could well become an issue. It's your responsibility, as the importer to ensure that your goods are properly declared. You wouldn't want HMRC coming after you for misdeclaration of goods, which could lead to a fine, a prison sentence, or both.

Ultimately, it makes no difference to you whether there's VAT or not, since you are VAT registered. If you use PVA, you don't even need to pay it.

Tell your suppliers to declare the goods properly.

Appreciate the advice ? Has cleared a lot of things up my end!

 

[japancool]

Appreciate the advice ? Has cleared a lot of things up my end!

Also remember - if anything happens to the goods in transit, for example they are lost or damaged, the freight carrier will only pay out on insurance to the declared value of the goods!