Flat Rate Scheme VAT help

tomstanley

I wondered if someone could help clear something up for me. I have just registered for FR VAT and I'm on the 6.5% rate.

I sell online and have all my prices set to already be inclusive of VAT

If I sell a product for £100 + £10 shipping do I calculate 6.5% of £110?

Or do I have to first add 20% to £110 and then take 6.5% of that total?

oldbikebloke

I assume the 6.5% rate is net of the 1% first year discount? Are you absolutely certain that you are not a Limited Cost Trader - although I grant the 7.5% sector rate for "retailing not listed elsewhere" would suggest you are likely to be buying physical goods for resale costing above the LCT thresholds each quarter so are probably genuinely on that sector rate.  (Bear in mind you have to test that for every Vat quarter, so you could dip in or out of your sector rate on a quarter by quarter basis - HMRC are unforgiving if you fail to do so)

You have a straight choice between 2 options, but given you state you have set your prices to be inclusive, then you have, in reality, already chosen option a):

A) no price rise 
Your customer pays you £110. That is deemed to be inclusive of 20% vat, so your net selling price would be £91.67 and the VAT element you collect is obviously £18.33. Does £91.67 give you the margin you want/need over your purchase cost?

You will then pay HMRC 110 x 6.5% = £7.15 on your Vat return.
Obviously as this is FR, you then get to keep the difference 18.33 - 7.15 = 11.18 as your "FR surplus" - in other words extra turnover for your profit and loss account given you cannot claim any input tax as that is the whole point of being FR.

,B) price rise 
you add 20% to £110 and the customer pays you that higher price.
The rest of the maths is as option a) but on the increased selling price of £132

whatever you do, make sure your website is totally clear on whether your prices are Vat inclusive or exclusive. If you are selling to end consumers (so B2C) not other businesses (B2B) then the assumption is your prices will be Vat inclusive so the customer is clear what the end price is. Although not enforced in statute law, the Advertising Standards Authority best practice guide says inclusive where your customer is not themselves able to reclaim any VAT you charge, ie they want to see the gross price used.

bris

You pay 6.5% of your total sales including postage so you pay 6.5% on the £110.
I am also assuming you are selling to consumers where the price shown must already include the VAT. If you are selling to businesses then it would be £110 + 20%  but you only pay 6.5% to the VAT man. 

Blackbeard_of_Perranporth

You charge 20% VAT on products.
You pay the VAT man 6.5% on your sales.