paying VAT

[tapmadi]

I am a small company i can claim back VAT on things i buy but when i sell something on what amount do i have to pay vat is the the whole amount i.e. the sale price or only the vatable amount i.e a certain component is non vatable - like i might sell a dance course at �1,000 but i purchase it for �500 plus VAT. so i can claim that VAT back �87.50 . if i purchase books within that price at �50 non vatable - and i go on to sell it included in that price of �1000 do i pay vat on �950 --help im confused?

[stanleyman]

You don't pay VAT on what you sell, you merely pass on the VAT to the Customs that you charged your customers and deduct the VAT charged on your outgoings. In effect you only pay VAT on your profits, if any.

[themas]

I don't think Stanleyman's point is answering your query. I don't know the answer but it is important you get this right so you should really get some info from your accountant or direct from the Customs & Excise people who registered you for VAT.

[stanleyman]

Your price to the public should be inclusive of VAT, doesn't matter what it is. You can sell the books separately or include them in the overall price and adjust the VAT for the difference you sell them at, or charge allowing for VAT on the whole amount and pocket the difference as per my original answer. You can mark up your books by 17.5% if you want to and the VAT man can't have it but you can't charge it as VAT! It just depends on what profit margin you need and can get.

[tapmadi]

what i need to know is do i need to pay 17.5% on �1000 the transaction value or can i get away with paying less. this will make or break my business - i need a free creative accountant...

[stanleyman]

For the third time no, only what is legally due.

[Trotbot]

If you are VAT registered, you need to account for VAT on everything you charge unless it is zero rated (e.g. some foods) or exempt (e.g. some financial services).

Therefore if you sell something for 1000 as a VAT exclusive price, you need to charge 1000 x 17.5%. If it is VAT inclusive (i.e. the total price paid by the customer) then the calculation is 1000 x (17.5 / 117.5), which means 148.94 VAT and 851.06 for you.

This VAT is then paid over to HMRC. However, if you have incurred VAT in the course of your business you can claim that back (effectively offsetting on your VAT return).

It would make sense to make the books a seperate supply, Stanleyman has covered the options.

It would be a bad thing to be creative if the strict and well documented rules are broken, as surcharges will be applied. The best approach is either talk to your local VAT office....

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_Home

....or an accountant. Local accountants can help with your VAT and will give a quote before starting work

[stanleyman]

Your course including books costing you �550 needs a mark up of say 36% to make a very small profit after all other outgoings = �859.37 + VAT of �141.64 on �809.37 = �951.00 + �50 books = �1001.00 total charge.

�141.64 - �87.50 = �54.14 VAT payable on that transaction only, less other inputs which may mean you pay nothing or even get money back in that quarter depending on what you have made. If you are paying VAT you are making a profit, usually.

Creatively, your books plus a course cost �550. As the books are zero rated only �87.50 is charged in VAT for the course at cost minus the �87.50 paid = nothing to the VAT man on this transaction. With other inputs you get money back.

[jason1980]

Hi

If you think of it this way - Vat you charge on your sales is called OUTPUT VAT & Vat you pay on your Purchases is called INPUT VAT. so long as you have your purchaes receipts and sales records. OUTPUT VAT less INPUT VAT is the amount payable.

As a small business if you do not make a lot of purchases but are VAT registered, enquiry if you can have what is called a FLAT RATE scheme, where you charge 17.5% vat on your sales but you only pay back every three months the same rate (ie) it can be 11% of the total sales prices - its much more simple.

Also as a tip to find the amount of VAT on an item that has vat on the sales price is to times by 7 then divide by 47

[Kazanne]

Right here goes, lets hope I've understood you correctly.

You will pay VAT on the total selling price of your dance course i.e. �1000, this is VAT inclusive and to obtain the VAT amount payable to HMRC you should apply the fraction of 7/47s. �1000 x 7/47s = �148.93.

If you purchase books at �50 and they are truely zero rated items (i.e no vat payable) then you do not pay VAT on the sale. Please be careful if these are not normal 'books' and include other items such as CDs, DVDs as the rules will vary. Why not log on to HMRCs website and look at the public notice 'Zero rating of books and printed material'?