commision based pay and vat

katymum

Hi all. Am a hairdresser that has been payed commision only for years. My previous company had the following system for working out wages;
my commision was 30%.
example monthly takings for the salon, £7000
salon boss said they must first take off vat @ 17.5%; £1225=£5775
next they took the company royalties off of 10%; £577.5=£5197.5
then only worked out the 30% wages; £1559.25 gross.
It seemed unfair at the time but as everyone was supposedly paid the same i didn't complain, however was recently talking to my dad who thinks this was illegal. He said they should not be taking the vat off first as they claim it back? Anyone know the facts regarding vat? too late know, worked there for 6years! but do not want to make the same mistake again elswhere. thanks

JCS1

Companies will pay commission on net rather than gross sales.

The company will pay the difference between sales VAT and purchase VAT over to HMRC (or get a refund), so it's not income.

Weirdlittleman

No your dad is wrong.

The salon charges £10. 17.5% of this would be VAT and payable to HMRC hence only 82.5% belongs to the salon hence commision should only be based on what the salon earns.

The salon may well reclaim VAT on supplies etc but this is nothing to do with what they charge customers or your commission.

suited-aces

Weirdlittleman wrote: »

No your dad is wrong.

The salon charges £10. 17.5% of this would be VAT and payable to HMRC hence only 82.5% belongs to the salon hence commision should only be based on what the salon earns.

The salon may well reclaim VAT on supplies etc but this is nothing to do with what they charge customers or your commission.

Minor correction, if the total including vat was £7000, the vat wouldn't be £1225 (£7000x17.5%), it would be £1042.50.

suited-aces

To recompute the whole thing,

Sales £7000
Vat (£1042.50)
£5957.5
Royalties (£596)
£5361.5

30% = £1608.45 gross

Don't lose out on £50 a month due to a miscalculation.