VAT

Pudsey Bear

Pudsey Bear

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Just chatting with Liz about VAT, and I started to wonder how much VAT would go to the tax man on something that went through for the sake of argument went through five companies to the end customer (disregarding the cost of making whatever) the manufacturer sells for £100, and each company adds their mark-up of say 50%.


I'm crap at sums.
 
errr, long time since I did anything like this BUT. To charge VAT you need to be VAT registered. If you are VAT registered then you claim back VAT on things you buy in and add to things you sell.

The end amount will rise each time as the cost will increase each time it changes hand I think is your point? Ultimately the government only get VAT once at the final price

As I said, long time ince I did any of this so I stand to be corrected if wrong
 
Of course yes, but how much is added to that final price/VAT

Not forgetting many small businesses are not VAT registered.
 
Pudsey Bear said:
Just chatting with Liz about VAT, and I started to wonder how much VAT would go to the tax man on something that went through for the sake of argument went through five companies to the end customer (disregarding the cost of making whatever) the manufacturer sells for £100, and each company adds their mark-up of say 50%.


I'm crap at sums.
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The Accountants used to work on a multiplier of 2.53 for retail businesses to stay in business, Kev; when I ran my own business, I carrried round in my head a 'Buy at £4, sell at £10' mantra [close enough for my purposes]. My £4 purchase would have generated some 67p reclaimable VAT, and would have cost me £3.33. My resultant £10 sale would have generated a £1.67 VAT liability and a net sale of £8.33, giving a net VAT revenue for HMRC of £1 [until I offset other VAT reclaimable expenses such as Fuel, Phone Bills, Venue Hire etc]

Steve
 
Pudsey Bear said:
Of course yes, but how much is added to that final price/VAT

Not forgetting many small businesses are not VAT registered.
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If not VAT registered then VAT should not be a factor in the sale/purchase. It should just be selling price, (well maybe delivery if not actually there).
 
Surely if you are not VAT registered your purchase has this 20% on top that you have to recoup from your customer making you more expensive.
 
Pudsey Bear said:
Surely if you are not VAT registered your purchase has this 20% on top that you have to recoup from your customer making you more expensive.
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You can't add any more VAT if not VAT registered Kev. If you buy something it will have the VAT portion on it, say you bought some socket sets on ebay for a tenner each that were a bargain and you intend to sell on. You decide you can sell them at £30 plus P&P so that's what you do. Customer pays £30 plus P&P end of story
 
I meant that the none registered person is at a disadvantage, they can only absorb the VAT as a cost of doing business and value their sale accordingly.
 
Pudsey Bear said:
I meant that the none registered person is at a disadvantage, they can only absorb the VAT as a cost of doing business and value their sale accordingly.
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Not sure it actually works like that but you would need someone who does this to answer you. I know if you are VAT registered you can do a lot of fiddles (at the risk of getting caught obviously) as you can with any tax system but that aside I don't think you are disadvantaged not being VAT registered.

EDIT: at the end of the day its the people who work for others that are at a disadvantage, they can't do much about anything. Upside of that is you don't usually have anyone chasing you though
 
Yes, the no VAT can be a fiddle and unfair to the customer.

Service = £400 + VAT = £480

IE if I ask for a no VAT price and they say £400 then I don't go for it as they are also keeping the income tax they would pay on the £400, if they say £300 or £350 I think that is fair and go for it.
 
Pudsey Bear said:
Yes, the no VAT can be a fiddle and unfair to the customer.

Service = £400 + VAT = £480

IE if I ask for a no VAT price and they say £400 then I don't go for it as they are also keeping the income tax they would pay on the £400, if they say £300 or £350 I think that is fair and go for it.
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Then you are assuming its an 'off the books price' which it could well be, may be they just discount the job though and still pay what they should.

If I am happy with price offered, (happy may not be the right word) i will accept, if not I go elsewhere. Also depends what it s I am paying for, if I am knowingly buying something err, slightly suspect shall we say then I would expect lower price but no comeback. If I was paying someone for work I would expect the work to be the same standard whether or not its on the books.

I once made the mistake of hiring a builder to build me a garage which he never completed. The builder got in trouble with tax people and the price I was quoted that was VAT free then included VAT and I had to pay full amount even though the garage wasn't completed by him. That doesn't mean I don't do cash in hand just I am more wary of who and what for :)

Just think, if cashless ever gets in this would all be theoretical anyway
 
Pudsey Bear said:
I meant that the none registered person is at a disadvantage, they can only absorb the VAT as a cost of doing business and value their sale accordingly.
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In general, Kev, a non VAT Registered Vendor is actually at an advantage, because there is no VAT chargeable on the sale! Go back to my £4 buy/£10 sell example, this cost a net £1 in VAT payable, so £9 gross profit less £3.33 net purchase cost = £5.67 net profit.

If I am not VAT registered, I buy at £4 inc VAT which I cannot reclaim, and sell at £10, so my net profit is £6. Being VAT registered is only advantageous if you have lots of VAT offsettable expenses. The purpose of VAT is to produce Tax Revenues, so it has to yield more from the final sale than the underpinning purchases cost in VAT reclaims

The examples are very simplistic, just for illustration, and there are all sorts of nefarious manouevres that VAT fraudsters deploy to exploit the VAT Regulations, including one that involved importing phones via the EU, then [falsely] claiming to have exported them outside EU. I can't remember the full details, but phones were crossing Borders by the lorry load and the VAT fiddle was worth £ millions until it was discovered

Steve
 
When I worked as a Limited Company I deliberately sold my labour only and avoided VAT. I did not want to get involved in any Project work which would involve buying materials and/or using other companies in the project. I was very happy to work for an hourly rate and hopefully would not have to work full time (part time work suited me as I approached early retirement).

Then some t**t rang me up and offered me a Construction Management job at stupid money for 6 months. Luckily I had just bought my first motorhome, so off I went .... camping. :giggle:
 
£16k isn't a business today Trev it's a hobby.
 
It'll be a weird Trev thing, I expect he meant profit.
 
I think Trev has a set of unique rules for himself :)

I get Pudseys point about charging 'VAT' if you are not VAT registered. if you are selling goods, it is not as simple as not adding on the 20% if you are not VAT registered because those goods YOU bought to resell you had to pay the VAT on yourself and cannot claim it back - so they cost you 20% more than a reseller who is VAT registered.
so your cost of sale is higher, therefore your price needs to be higher than the VAT-registered resellers ex-VAT price. No, you are not charging actual VAT of course, but it is like a compensation for the VAT you paid.
 
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