General Business Forum Brought to you by Square

Working out profit margin with VAT

Discussion in 'General Business Forum' started by LoobyLou45, Jul 12, 2018.

  1. LoobyLou45

    LoobyLou45 UKBF Newcomer Free Member

    1 0
    I was wondering if someone could possibly help us work out how to work out profit margin on a item when VAT come's in to play. We shall soon be registered for VAT and we are wondering how this work's now.

    We buy an item for £320 plus VAT for example, we sell this on say Amazon for £450 inc VAT. Carraige is £6.00, fee's in the Category are 15% would someone help us work out the profit (or not) on this please?

    Louise.
     
    Posted: Jul 12, 2018 By: LoobyLou45 Member since: Jul 12, 2018
    #1
  2. CriticalThinker

    CriticalThinker UKBF Contributor Full Member - Verified Business

    53 9
    Hi Louise,

    To work out your profit on the item ignore the VAT as this is a tax and is reclaimable / payable by your business, it is therefore not an income or cost to your business and will not affect your P&L.

    Sales price £375 (exc. VAT)

    Less:
    Purchase price £320 (exc. VAT)
    Carriage cost £ 6
    Category fees £ 68 calculated as 15% of SP

    Loss on item £ 19

    I have of course assumed the calculation of the 15% fees is based on the SP but this will show you the principal to calculate your product profit or loss.

    Hope that helps but if you have any more questions please ask!
     
    Posted: Jul 12, 2018 By: CriticalThinker Member since: Jul 2, 2018
    #2
  3. MikeJ

    MikeJ UKBF Big Shot Free Member

    5,380 1,529
    VAT should be charged on shipping costs, shouldn't it? It's not clear if the £6 is including VAT or not.
     
    Posted: Jul 12, 2018 By: MikeJ Member since: Jan 15, 2008
    #3
  4. CriticalThinker

    CriticalThinker UKBF Contributor Full Member - Verified Business

    53 9
    VAT on postage costs depends on a number of specific criteria to determine the applicable VAT rate so I have assumed for these purposes that the £6 is the cost to the business and does not take into account any VAT.

    I don't want to complicate things with VAT legislation on postage costs but it's VAT Notice 700/24 sec 2.2 if you are interested and fancy some light reading :)
     
    Posted: Jul 12, 2018 By: CriticalThinker Member since: Jul 2, 2018
    #4
  5. Mr D

    Mr D UKBF Legend Free Member

    7,699 792
    If buying at such a price may want to set your price higher to cover the costs.

    I'd be looking closer to £800 plus. Or looking for another item to buy.
     
    Posted: Jul 12, 2018 By: Mr D Member since: Feb 12, 2017
    #5
  6. consultant

    consultant I Can Help Your Business Staff Member

    5,301 738
    to calculate ex vat margin -
    ((selling - vat) - cost ex vat) / (selling-vat)
     
    Posted: Jul 13, 2018 By: consultant Member since: Jan 21, 2008
    #6
  7. astutiumRob

    astutiumRob UKBF Ace Full Member - Verified Business

    1,315 241
    £450 inc vat is £375 exc VAT
    So your profit would be £55, less ...

    Inc or ex vat ? This is a fee you pay to send it not charged to the purchaser ?

    This is a fee you pay the platform on the _sold_ price presumably, so £67.50

    So clearly a loss maker :(
     
    Posted: Jul 13, 2018 By: astutiumRob Member since: May 5, 2004
    #7