Working out the selling price

[mconridge]

Hello!

This is driving me batty so I'd thought I'd ask the professionals

I need to work out what price I need to sell an item at based on the following constraints:

- Margin that needs to be achieved
- VAT

For example, I buy a widget for £1 ex VAT and need to achieve a margin of 50% after paying VAT. Does anyone have a calculator or now how to work this out?

Thanks :redface:

 

[mconridge]

Anyone??????

 

[Pilfo]

Hello!


For example, I buy a widget for £1 ex VAT and need to achieve a margin of 50% after paying VAT. Does anyone have a calculator or now how to work this out?

£1 plus VAT = £1.175 (£1.18)

Plus 50% = £1.77

Therefore after you've paid the VAT = £0.50p

It's that simple! (isn't it?)

 

[mconridge]

Not quite that simple I'm afraid!

We pay VAT on the selling price and reclaim the VAT we paid.

So we would pay 17.5% VAT on the £1.77 and claim back the £0.18 we paid. This wouldn't give us a margin of 50%.

 

[Tempest]

Ok so over all you need to make £1.50 at the end of it all after you have claimed VAT back right? So simply put you are taking 17.5% off of £1.50 and claiming it back later? So your selling price would still be £1.50.

Or if you need to acheive £1.50 after the VAT is taken off and before it's claimed back then the selling price is £1.50 + 17.5%.

 

[Deleted member 9840]

You have to discount the VAT with regards to your profit. The VAT is not your money and does not come into the equation.
£1.00 + 50% = £1.50

The Vat:
You pay your wholsaler £0.175
You charge your customer £0.26
You pay HMRC the change £0.085

Nothing is left!

The only time you can "profit" from VAT is when you pay your supplier std rate 17.5% and charge the customer reduced rate 5%. eg when i install A/C into some ones home.

cheers

 

[Pilfo]

Thanks Tempest and Steve Cool, I knew my time at school wasn't wasted!

Maybe Outdoor Leisure Direct didn't do maths?

Pilfo

 

[Argentum]

Charge £1.82


Chee
Argentum Accounting Limited

 

[mconridge]

Sorry, maybe I've not explained it well.

I need to make a set margin, say for example 50%. So after I have paid the VAT the profit I make from that item needs to equate to 50% of the purchase price.

So I buy an item at £1.00 ex vat

I then pay £0.175 VAT

I need to be able to work out how much I need to sell the item for to achieve 50% margin. If I sell at £1.50 as Piflo says then when VAT is taken off of the selling price I haven't achieved the 50% target.

I'm not trying to profit from VAT but work out my margins after it.

Does that make sense?

 

[mconridge]

Tempest, yes I think that's it.

If I sell the widget for £1.76 then when VAT is taken away I would be left with £1.50 which would allow me to achieve the 50% margin.

Thanks!

 

[Tempest]

Not bad for someone who is mathematically dyslexic eh?

Worked as an analyst for years and even though I couldn't tell you how to work out the percentages I know how it all should relate to get to the answer you're looking for.

I heart excel

 

[Argentum]

How does £1.76 lTss 17.5% VAt give £1.50?

17.5% of £1.76= £0.308p

Chee

oooppps Fundamental mistake in my calc.!

 

[Argentum]

Ignore my last message!

 

[Pilfo]

Tempest, yes I think that's it.

If I sell the widget for £1.76 then when VAT is taken away I would be left with £1.50 which would allow me to achieve the 50% margin.

Thanks!

That's EXACTLY what I said!!!

Why you no listen?

Pilfo

 

[Pilfo]

How does £1.76 lTss 17.5% VAt give £1.50?

17.5% of £1.76= £0.308p

Chee

oooppps Fundamental mistake in my calc.!

£1.76 divided by 117.5 then multiply by 100 = £1.50

Are you sure you guys should be in business?

Pilfo

 

[mconridge]

#15 Very sure!

When I have spent hours looking over the same figures it tends to become a blur!

But yes, you are correct. My humble apologies

 

[frauke]

Something to think about:

Sale price is £2.00 + VAT (£2.35) - x 50% = £1.00

£1.00 is 50% of £2.00 (i.e. gross profit!)

By working out the profit on cost prices, rather than sale prices, profit margins are usually too low.