VAT payments for kids clothes???

Treadway1

Afternoon all,

Not sure if this is exactly the right sub to post in, but thought business owners in here might have the low down on VAT. This is more 'out of interest' as well, as opposed to trying to drop anyone in it.

So I was on a large, reputable retailer's website just now (I won't name them, as they may be doing nothing wrong) buying a sports clothing item for my 10 year old son, which was advertised at £23.75. However when I got to checkout, it was adding £4.75 in VAT. As I was under the impression that kids clothes were zero rated for VAT, I went googling to confirm that.

I found that certain items (like school uniform) still attract VAT but that otherwise, all kids clothes under a notional 14 year old's size were 0% VAT.

As I had chosen the 10-12 year old jacket then, I jumped on the web chat to ask why VAT was being added to the item. It took a while to get the answer, as the guy on the chat needed to speak to his manager, who then had go higher up still to get an answer.

Eventually though, I was told that if any of their clothing items in the range has a size listed at which VAT should be paid, then the website applies it to ALL the sizes in that range. They offered me a discount code to reduce the VAT amount in any case though, so I was happy with that.

However, my enquiring (nosey! ) mind wasn't satisfied, so I asked what happened to the overpayments for VAT that customers paid on kid's clothes on their website? Does it go to the government? Do they keep it, etc? and this is the response I got:

"So it's common practice that businesses pay a fixed amount of VAT each year to the goverment and charging for VAT is how they get the money back. So yes, our company would keep the VAT payments but it's to make balance with what was already paid to the goverment for selling products! It's a bit more complicated than this, but hope this summary helps understand how it works."

Again, more for my curiosity really, but does this sound right? If companies do pay a fixed rate of VAT, then I could understand them keeping the VAT charged for adult clothes, but still charging it for kids items seems a little wrong to me. 

Again though, I'm not looking to shop anyone, it just piqued my interest!

Anyone out there with any knowledge of VAT rules/procedurtes?

Savvy_Sue

No expert but Google 'flat rate VAT registration' and see if that looks like a plausible explanation. 

Treadway1

So flat rate VAT is a thing, which I understand (to a degree) but I guess I'm asking if it's right that they should then still be charging VAT on kids clothes?

Jeremy535897

Yes it is. If you enter a flat rate scheme, it applies to all sales, standard rated, zero rated or reduced rated. You would not choose a flat rate scheme if a significant proportion of your sales were of zero rated items to the public.

DullGreyGuy

First of all, flat rate VAT scheme can only be entered into by companies with a turnover (not profit) of under £150,000... you have to leave the scheme once your turnover hits £230,000. A company that has a live chat facility with managers etc is almost certainly well above this level and so wont be in the scheme. The average turnover for a company with 1-9 employees is £530m £530k (pre-covid).

Most company's system will work that the front end will work out the net price, VAT and total price and the former two will flow through the ledgers and the VAT calculation will simply be an addition of the numbers. So if they are collecting VAT on something they shouldnt be then its HMRC that benefits not the company. As long as you are passing the VAT to HMRC there is nothing illegal about overcharging VAT but you are shooting yourself in the foot as a business doing so as you are simply 20% more expensive than you need to be.

liz_bartun

They could be using one of the retail schemes, if they are still a thing - it's a while since I've done VAT for retail bookkeeping.

gee9fam

DullGreyGuy said:

 The average turnover for a company with 1-9 employees is £530m (pre-covid).

Wow, that puts my business to shame, need to tell my colleagues we all need to work harder! Think you may mean £530k.

DullGreyGuy

gee9fam said:

DullGreyGuy said:

 The average turnover for a company with 1-9 employees is £530m (pre-covid).

Wow, that puts my business to shame, need to tell my colleagues we all need to work harder! Think you may mean £530k.

Or change sector... challenges of multi-tasking