Need to get a SUM checked ..

some UK VAT doubts..

[jaski]

I don't know any thing about how things work in the UK and this is what I have been told by a guy I am to enter in a biz relationship with .. so any inputs on anything are highly appreciated :)

I am just going to write a sample calculation .. please let me know if I have got my sum right.

A widget starts at a trade price of 6.95 and ends up at 16.00 in end user's hands.

The sum

Cost Price - 6.95 ; Final Price - 16.00 (including VAT and Postage)

Cost Price = 6.95
17.5% VAT applied = 8.17
World Pay 0.64 (4% on 16.00) + Transaction Fee 0.50 = 9.31
Postage (First Class Post) 1.50 = 10.81
Selling Price = 13.61 (reverse calculation from 16.00 - 17.5% of (16.00))

Profit = 2.80 (13.61 - 10.81)

I am not sure if final VAT is to be applied on top of postage and world pay fee as I have done.

Any thing else sounds NOT OK? :)

[dazz]

From what I know you have to have the VAT 17.5% added into the selling price to the customer.

So if you sell a widget for £10 and the cost price to you is £5 the VAT has to be included into the selling price at £1.75.

you then add the postage and packing eg £2.50

so......

Net £5
VAT £1.75
Profit £3.25
Postage and packing £2.50

Cost to customer = £12.50

[Essex_boy]

yep seems fine to me in the UK. check out the inland revenue site for help on VAT matters, they are really helpful.

Vat's a real killer though. oh one last thing I take it your VAT registered? Other wise you cant charge vat.

[NFFC]

jaski you *really* need to take some professional advice on this matter.

[jaski]

jaski you *really* need to take some professional advice on this matter.

Its not a legal risk for *me* as such because its *not my biz*. I am to do SEO for a site in which I will have a revenue sharing arrangement. I just need to estimate how much I can expect before I start the negotiations .. and because my percentage is going to be a single digit number .. every penny counts ;)

besides .. I am in India and don't know of any pros here who can tackle this kind of questions about UK laws.

I will try to rephrase and simplify my questions though ..

To apply VAT do we add it on top of (widget price + Postage + Worldpay Fee)
Or do we exclude some of the above.

Dazz said we exclude Postage.

[NFFC]

Good thread on postage and VAT

[webmasterworld.com...]

>revenue sharing arrangement

Ah, so you want to know how much of the sale is due to you, got it.

VAT is really quite simple for a VAT registered business. If your client buys something for £10 he will pay £11.75, if he then sells it for £20 he will need to charge £23.50. The point is that he collects the £3.50 as tax BUT claims the £1.75 back. He buys for £10, sells for £20 and hence makes a £10 margin, the VAT is not a part of the profit process.

If you are looking at a revenue share I would just try and make it simple, go for a % of the sales price [including shipping - because that stops him hiding margin from you] less the VAT. Take the sales price, divide by 47, multiply by 7 and deduct that amount to give you the VAT free price.

[cornwall]

>>To apply VAT do we add it on top of (widget price + Postage + Worldpay Fee) Or do we exclude some of the above.

I am of the school of thought that you have to pay VAT on the whole thing.

If your selling price is £16.00 then that is made up of £13.62 + £2.38 Vat

If the purchase price includes Vat (and in lieu of any other information it should), then you can reclaim Vat on that if you are Vat registered and are paying Vat on the selling price. On the figures you have given, if the £6.95 includes Vat, then that would include £1.04 Vat which could be re-claimed

Your Vat bill per item would be a net £1.34 per item

Vat is a complex subject, and subject to all sorts of complexities. Small businesses do not have to register in the UK if their turnover is under (from memory) £56,000. In which case you would not have to charge Vat

My advice would be to contact UK Customs & Excise, who administer the tax, tell them you estimated turnover, what you are selling and how you will be selling it and get a definitive answer

[jaski]

If you are looking at a revenue share I would just try and make it simple, go for a % of the sales price [including shipping - because that stops him hiding margin from you] less the VAT.

Thanks for the tip nffc :) .. yes I am hoping for an arrangement like this.

[ytswy]

I would always treat VAT as the last thing to be added on, internaly you really want to be dealing with everything ex-VAT.

Just add everything up to an ex-VAT sub-total and then add 17.5% to that right at the end to get the total which the customer has to pay.

You definately have to charge VAT on delivery unless your client is the post office :)

I wouldn't worry about VAT on cost prices - book things in at the ex-VAT price since all the VAT your client pays will be reclaimed.

Therefore your profit = exVAT sell price - exVAT buy price.

[liamgt]

Jaski,

You need to add vat to the postage as well as the product. However if the customer is vat registered in the uk then he can claim exemption from paying you the vat and pay it to customs when it arrives. You also need to be sure that the product you are selling attracts vat. Ie in the uk children clothes do not have vat but adults clothes do and food stuffs do not carry vat but chocolate etc does. Professional advice needed methinks.

liam

[Receptional]

You may not need for professional advice Jaski - this forum is good enough. As NFFC says, you just invoice your business colleague your percentage of the sales price excluding VAT. You are in India - VAT isn't your problem. It's his.

Now... if you set up the company in the Cayman Islands and imported to the UK there would be no tax at all accept import duty which is pretty well ignored by all and sundry if it is a download... but then maybe that's when professional advice is very important.

By the way - the Cayman Islands is a very expensive place to set up offshore companies, but I hear the whether is nice.

:)

Dixon.