Ebay business sellers, what % profit is acceptable

kaza

This may sound a strange question but I just wondered how much profit business sellers aim to make.

The reason I ask is because I know that my turnover this year will come very close to the £73,000 mark and I (think) I want to keep it below that. Most of my items are between £10 - £20 and my average profit after ebay/paypal charges post etc is about 30-60%.

I know if I reduced my prices slightly I could sell a lot more and make about 20% -30%, and also add new lines and make 20-25 % profit.

I know its my decision, I just dont know if Its better to sell less and keep my turnover below the VAT threshold and make say 40% or just go for it and sell as much as possible?

I have only had my shop since April this year so any advice is welcomed.



Thanks
Karen

pitkin2020

Thats an unanswerable question, what one person requires as a profit margin per product will vary from someone elses. One person may only look for a 1-5% profit margin on each product if they are looking at selling huge volumes. It also depends how you work your profit out, are you including your time, rent, telephone, internet etc etc. For me on my material cost I have around 300-500% profit margin, but that is purely on raw material cost V retail price.

Just to add beware that if your business has been steadily increasing year on year to the point you are estimated to reach the VAT threshold and then you back off you will look suspicious if you don't go over the threshold. Especially if you hover for the next year year or two just under the VAT limit.

kaza

No I dont include my time as I am at home anyway, I literally just buy items to resell, so the only time really is packaging an going to the post office, but I know what you mean.

As for the vat its a new business I only started this April, but I will aim to keep my turnover below £73000, on your tax return I didnt think they asked for turnover just tax payable?

pitkin2020

Your turnover still has to go on the tax return (along with other details) or how would they know what your tax liability is?

Just to add reducing your profit margin but selling more won't help you avoid the threshold, you may even reach it quicker if the new lower price is more attractive.

pitkin2020

From the HMRC site, suggest you check it out for further information. It would probably be advisable to speak with an account aswell to ensure if you do reach the VAT threshold you are accounting your liabilty correctly as you don't want to pay more VAT than you need to nor do you want to be paying less than your meant to be paying. A good account will save you his/her fee alone.

Supplying goods or services within the UK. If your turnover of VAT taxable goods and services supplied within the UK for the previous 12 months is more than the current registration threshold of £73,000, or you expect it to go over that figure in the next 30 days alone, you must register for VAT. However, if your turnover has gone over the registration threshold temporarily then you may be able to apply for exception from registration see the section later in this guide for more information.

http://www.hmrc.gov.uk/vat/start/register/when-to-register.htm

kaza

pitkin2020 wrote: »

Your turnover still has to go on the tax return (along with other details) or how would they know what your tax liability is?

Just to add reducing your profit margin but selling more won't help you avoid the threshold, you may even reach it quicker if the new lower price is more attractive.

Because, surely tax liability goes off your profit not your turnover - that is what I assumed I would be asked for.
Thanks for your help

pitkin2020

Yes tax liability is based on your profit but to work out your profit you need your turnover minus all your expenses to be left with the profit figure (in simple terms). If you submit to the tax office your profit is (for example) 50k, so your tax liability is 15k how do they know that without your turnover figure? See what I mean?

HMRC won't just take your word for it that you owe them X amount, they will want to know how you got that figure.

kaza

Out of interest have HMRC ever asked to look at your books? I just wondered what % of small businesses ie ebay sellers thay actually audit?

macfly

pitkin2020 wrote: »

Just to add beware that if your business has been steadily increasing year on year to the point you are estimated to reach the VAT threshold and then you back off you will look suspicious if you don't go over the threshold. Especially if you hover for the next year year or two just under the VAT limit.

Look suspicious? How?
It's perfectly legitimate to keep below the vat threshold, they can't force you to work harder.

Oliver14

pitkin2020 wrote: »

Just to add beware that if your business has been steadily increasing year on year to the point you are estimated to reach the VAT threshold and then you back off you will look suspicious if you don't go over the threshold. Especially if you hover for the next year year or two just under the VAT limit.

In that case thousands of business would be in trouble. Its pretty common practice to keep yourself below the VAT threshold.

blue_monkey_2

I don't think you realise but VAT is done a rolling 12 month period so it has nothing to do with what is on your tax return. VAT is completely seperate to your annual tax/NI liability. You may have already exceeded it if you think it;ll be close 'this year'

Say you start your business in Sept and sales are S=£4K, O=5K, N=5K, D=5K, J=6K, F=6K, M end of tax year A=5K, M=7K, J=6K, J=6K, A=7K, S=6K, your end of year O=7K, N=7K , D=7k

In December you have now gone over the £73k limit, you now have to register - you will have to make sure every single month that your sales do not exceed the turnover liit so you have to be VERY on top of your accounts if you are already hovering 'just under'. This is not the amount you have after eBay fees but your actual turnover including P&P.

So you have choices, do not list as much, hope that nothing sells that month if you are getting close or just get registered and be done with it.

My opinion, people who do this have something to hide. I know several people who do it and they deal with cash but I would not, it's not worth the hassle as far as I am concerned for a few extra hours paperwork. I've never been checked but someone I know has and they went through everything and they investigated him for a year - it is still ongoing.

Also once you turn over more than 15k they will want a breakdown of your outgoings on your annual self assessment - you can no longer put your figure for sales/purchases, they want to know how much you have spend on what purchases.

If you have not got Sage/Quickbooks then it's time to get it - or a bookeeper or accountant - because you do not seem to know all you think you do and once you hit 15k more information is needed on your self assessment forms. If you have not been keeping detailed records you have got a lot of work to do to get them done before yourself assessment.