Sales tax

Dannycelluk

Hello there

Can anyone tell me how to calculate sales tax? If I buy a product for £3 and I sell for £10 how do I add on sales tax to the item so that I still make £7 profit after tax?




If that makes sense:-)


Cheers


Dan

googler

By sales tax, are you referring to VAT?

Dannycelluk

No sorry I mean corporation tax as we are not vat registered.

Dannycelluk

my brother and myself have started our first company ( not started trading yet) but we are already both employed. So it's part time. Basically I want to add on the tax and other fees before hand so that we still make the same profit after tax, eg if we are making £7 profit, I need to add on 20% corp tax and 2.5% PayPal fees to ensure I still get £7 profit after tax and fees.

chalkie99

Approx. 28.33%

So - £10 + 28.33% = £12.83


£12.83 - 2.5% fees = £0.32 leaving £12.51 before tax

£12.51 less 20% Corporation Tax leaves you with £10

Whether this actually gives you a true answer is debatable.

For instance, you mention Corporation Tax - have you actually formed a Limited company?

How much do you earn elsewhere and how do you plan to pay yourself from your new venture?

PayPal isn't 2.5 % is it?

What about delivery costs to your customer?

Does the cost price include VAT and delivery from your supplier?

Not quite as straight forward as it might seem.

Dannycelluk

Yes I started a limited company, my bro earns less than 20k and I earn more than 40k so I need to find the most tax efficient way to pay both of us, i heard dividends maybe the bezt way? we might not claim anything for the first year tho, and put it all back into equipment/stock. Where did you get the 28.33% from?

Lady_strange

You will pay 20% of what ever you make as profit, so adding more on, will mean you pay more in tax.

Sign up to go on a couple of courses run by hmrc to get a better understanding of this. And don't forget that when you file tax returns, you will have to take into account both sets of wages from your full time work, meaning you could easily end up being in a higher tax band.

chalkie99

i heard dividends maybe the bezt way?

Assuming you have equal shares in the Company then you would need to take equal dividends too. In that case your brother could receive them tax free (until he reaches the 40% tax bracket) whilst you would be taxed on yours if you are already in the 40% bracket.

You really need to speak to an accountant to understand the implications and also to be clear on your requirements to file not only accounts with HMRC but also annual returns to Companies House.

Where did you get the 28.33% from?

Just basic maths from the top of my head - I have given you the workings !

As I already mentioned there are other variables including the fact that PayPal, to the best of my knowledge, is not 2.5% so the actual percentage would need adjusting when you have rethought what your true costs are.

Dannycelluk

Lady_strange wrote: »

You will pay 20% of what ever you make as profit, so adding more on, will mean you pay more in tax.

Sign up to go on a couple of courses run by hmrc to get a better understanding of this. And don't forget that when you file tax returns, you will have to take into account both sets of wages from your full time work, meaning you could easily end up being in a higher tax band.

thanks for the reply,i dont think you understand what im trying to say, I want to know what price to sell my product at so that when all tax etc has been deducted, i still make £7 profit.

When you say both sets of wages, do you mean my wage from main job and part time job or my wage and my brothers wage?

thanks again for the replies.

Dannycelluk

chalkie99 wrote: »

Assuming you have equal shares in the Company then you would need to take equal dividends too. In that case your brother could receive them tax free (until he reaches the 40% tax bracket) whilst you would be taxed on yours if you are already in the 40% bracket.

You really need to speak to an accountant to understand the implications and also to be clear on your requirements to file not only accounts with HMRC but also annual returns to Companies House.



Just basic maths from the top of my head - I have given you the workings !

As I already mentioned there are other variables including the fact that PayPal, to the best of my knowledge, is not 2.5% so the actual percentage would need adjusting when you have rethought what your true costs are.

We havnt got an accountant yet as we want to wait until we are trading, so the business will pay for itself, At present we have no business loans and have set the business up completly from our own money.

Yes sorry the 2.5% paypal fee was just an example i believe it is between 3.4% and 1.4% depending on the monthly sales. hopefully 2.9 for us.

I just thought there might be a rule of thumb or such like to calculate the figure, rather than trial and error to try and work out a percentage.

Dannycelluk

chalkie99 wrote: »

Assuming you have equal shares in the Company then you would need to take equal dividends too. In that case your brother could receive them tax free (until he reaches the 40% tax bracket) whilst you would be taxed on yours if you are already in the 40% bracket.

You really need to speak to an accountant to understand the implications and also to be clear on your requirements to file not only accounts with HMRC but also annual returns to Companies House.



Just basic maths from the top of my head - I have given you the workings !

As I already mentioned there are other variables including the fact that PayPal, to the best of my knowledge, is not 2.5% so the actual percentage would need adjusting when you have rethought what your true costs are.

I was also under the impression that my brother could take a dividend and i didnt have to if i didnt want to? is this correct?