vat help for a new business

stevens29

hi, were a new ltd business and im trying to get my head around all of this tax info. im trying to work out vat, here is my scenario to see if i have it right:

were bathroom sales

we buy a bathroom for £ 3368.00 of which i can claim £561 back from hmrc for the vat i paid on it

We then sell the bathroom for £5368

The profit is £2000 so do i have to pay hmrc 20% of the £5368 which would be £1073 or just 20% of the profit which would be £400

Mouse1812

stevens29 wrote: »

we buy a bathroom for £ 3368.00 of which i can claim £561 back from hmrc for the vat i paid on it

Correct if the £3,368 is the GROSS purchase price (ie including VAT)

We then sell the bathroom for £5368

The profit is £2000 so do i have to pay hmrc 20% of the £5368 which would be £1073 or just 20% of the profit which would be £400

Neither. The Gross selling price, £5,368, is including VAT. That is 120% - 100% + 20% VAT. So the VAT on the gross selling price is 1/6th not 20%. The amount is therefore £894.67 owed to VAT man.

You should work in net figures (excluding VAT) to calculate your profit etc. The profit is not £2,000, but £1,666.33. Make sure you fully understand this, because getting your prices and profit wrong could kill your business. Good luck.

CKhalvashi

Mouse1812 wrote: »

You should work in net figures (excluding VAT) to calculate your profit etc. The profit is not £2,000, but £1,666.33. Make sure you fully understand this, because getting your prices and profit wrong could kill your business. Good luck.

This is correct. It’s also worth noting that diesel can be taken from this at (I think) 45p/mile. My accountant deals with this, I just note down mileage(!)

£1666.33 is correct, -45p/mile.

heretolearn_2

Are you actually VAT registered? You should only charge VAT if you are, and you can only reclaim it if you are.

If you are registered then unless you are on a fixed VAT scheme with the HMRC, which I assume you are not as you don't mention it, then you need to do a quarterly VAT return.

If you are VAT reg always work on the net (without VAT) cost and then add the 20% VAT to that, whether you are buying or selling. VAT is nothing to do with profits. You can make a loss and still have a VAT liability. You can't mix up net and gross - you are already overestimating your profits by doing that and it will cause you big problems.

You compare how much VAT you have collected over the quarter with the amount you have paid. If you have collected more than you paid, you send the difference to the HMRC. If you have paid more than you collected, the HMRC will send you a refund of the difference. You don't work this out on a per job basis, it is the overall picture for the quarter.

so Jan - March
purchase costs £10,000 net, with £2000 VAT paid on top of that.
sales of £50,000 net, with £10,000 VAT collected.

Difference is £8,000 to be paid to HMRC.

If you are a Ltd VAT reg company I highly recommend getting an accountant.

stevens29

we are vat registered and have an accountant but i am wanting to try and understand it for myself as well,

ok so i think i get where i went wrong wth my original calculations but can you explain this 1/6 a bit more and how do the calculations work when vat changes for example when it was 17.5%

sorry for being a dummy

stevens29

scrap that i think the penny has just dropped!

but let me clarify

so the overall gross price is £5368 so to work out the vat

divide 5368 by 120 then x by 20 to get the vat

and then it would just amend accordingly

divide 5368 by 117.5 (if vat were still 17.5%) and times by 17.5 to get vat

chrismac1

Purchase - you claim back 561.33 on the purchase, providing you have a valid tax invoice from the supplier which shows this amount on it. Sales - all of your sales are standard rated, if you sell a bathroom for 5,368 in cash then the VAT element is one sixth of that, so 894.67. However, please not that in your business it is common to have 2 tax points for a sale - one on deposit, one on completion. If the deposit is taken before the end of the VAT quarter, and the final balance after it, the output tax is then split between two quarters.

My advice to similar clients is to raise an invoice for each transaction - one for the deposit and one for the balance. The deposit invoice is the date of receipt, the balance invoice is the date of final sign off by customer assuming this is earlier than the receipt.

There's a good chance you're going to trip up without professional advice. Get a decent system set up now and you can forget about all this VAT mumbo jumbo.

heretolearn_2

yes, but you shouldn't have to do these calculations working back from the gross. Your suppliers should always give you a VAT invoice/receipt, which breaks it down. VAT reg businesses always work on net plus VAT (so the net x .2 to get the VAT, or x 1.2 to get the total gross price).

If they are not VAT registered and not charging you VAT, then you can't reclaim anything. If they haven't given you a VAT invoice/receipt, you can't reclaim anything.

Take a look at your till receipts next time you go to the supermarket to see a breakdown.

spadoosh

CKhalvashi wrote: »

This is correct. It’s also worth noting that diesel can be taken from this at (I think) 45p/mile. My accountant deals with this, I just note down mileage(!)

£1666.33 is correct, -45p/mile.

Wah!?

Thats vague, loads of expenses can be deducted from this to reduce your tax bill and varies depending on the business.

pelirocco

CKhalvashi wrote: »

This is correct. It’s also worth noting that diesel can be taken from this at (I think) 45p/mile. My accountant deals with this, I just note down mileage(!)

£1666.33 is correct, -45p/mile.

Are you using a company owned vehicle or your own personal one?

Mouse1812

stevens29 wrote: »

scrap that i think the penny has just dropped!

but let me clarify

so the overall gross price is £5368 so to work out the vat

divide 5368 by 120 then x by 20 to get the vat

and then it would just amend accordingly

divide 5368 by 117.5 (if vat were still 17.5%) and times by 17.5 to get vat

Spot on, remember it as: multiply by what you want (20) and divide by what you've got (120).

So moving on if you had the VAT figure you could work out the net or gross.