Voluntarily registering for VAT - which figure qualifies as the selling price ?

Murphy_The_Cat
Murphy_The_Cat Posts: 20,967 Forumite
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edited 3 November 2022 at 11:57PM in Small biz MoneySaving
In the very near future, I'm going to register a small businesses that I am a partner in for VAT, even though the business is a long way below the threshold (we're spending a lot on some capital investments and will be claiming the VAT element back).

We sell quite a lot of £30 items, & on most of them, we pay a £5 comission to the person who makes the sale - we then get a sales order from him to provide (say)  2 x items @ £25 = £50.

In a typical quarter, the person sells 250 items for us.

On the business VAT return, would we report a turnover of £7500 (£30 X 250), or a turnover of £6250 (£25 x 250) ?  - plus naturally the items that we sell at £30 each.
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  • Jeremy535897
    Jeremy535897 Posts: 10,423 Forumite
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    You report the £7,500. You say you may register "one of your small businesses". If you have several sole trades in your name, you have to register all or none, and the turnover limit of £85,000 for mandatory registration is based on the aggregate turnover of all these businesses.
  • Murphy_The_Cat
    Murphy_The_Cat Posts: 20,967 Forumite
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    edited 3 November 2022 at 11:58PM
    You report the £7,500. You say you may register "one of your small businesses". If you have several sole trades in your name, you have to register all or none, and the turnover limit of £85,000 for mandatory registration is based on the aggregate turnover of all these businesses.
    Thank you Jeremy - then £7500 it will be.


    Original post now edited for clarity.

  • tightauldgit
    tightauldgit Posts: 2,628 Forumite
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    In the very near future, I'm going to register a small businesses that I am a partner in for VAT, even though the business is a long way below the threshold (we're spending a lot on some capital investments and will be claiming the VAT element back).

    We sell quite a lot of £30 items, & on most of them, we pay a £5 comission to the person who makes the sale - we then get a sales order from him to provide (say)  2 x items @ £25 = £50.

    In a typical quarter, the person sells 250 items for us.

    On the business VAT return, would we report a turnover of £7500 (£30 X 250), or a turnover of £6250 (£25 x 250) ?  - plus naturally the items that we sell at £30 each.
    You report the turnover that you generate. In this case it seems like it would actually be the £25*250 if that is what you are being paid? But that doesn't sound right to me. It depends how the cash flows really.

    It's not exactly clear how you are accounting for things - the sales person invoices the customer £30, then pays you £25 for the item? Does the end customer pay you or the sales person? Are they your employees or independent businesses? How are you accounting for the £5 commission? 

    I think you might need to tidy this arrangement up for VAT purposes as you'll need to be charging the VAT properly. I assume your sales people aren't VAT registered? 

    Assuming that the end customer pays you then you need to be charging VAT on the £30, recording the £30 as your turnover and recording the £5 as a staff expense

    If the sales people are independent businesses in their own right then it's going to get a little confusing potentially as you will need to charge them VAT on the £25 but they won't be able to pass that on to the end customer unless they are VAT registered. 


     
  • Jeremy535897
    Jeremy535897 Posts: 10,423 Forumite
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    The story unfolds. If the person who makes the sale pays you £25 and sells the items to the customer for £30, the £5 is not a commission. You are a wholesaler and the seller is a retailer. If you make the sale to the customer at £30, and pay the intermediary £5, that is a commission. Which is it?
  • Mistral001
    Mistral001 Posts: 5,349 Forumite
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    A VAT is paid on what you invoice your seller.  As far as I can see that is either £25 plus £5 VAT = £30 and he sells it for £35 (assuming that he is not VAT registered), or £20.83 + £4.17 VAT = £25 and he sells it for £30.
  • DullGreyGuy
    DullGreyGuy Posts: 10,264 Forumite
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    You need to be clearer on the flow of monies....

    Customer pays you £30 and you pay the sales person £5 then you report £30 as that was your monies and you're a retailer

    Customer pays the saleman £30 and the saleman pays you £25 then you report £25 as that was your monies and you are a wholesaler/dropshipper 

  • Murphy_The_Cat
    Murphy_The_Cat Posts: 20,967 Forumite
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    edited 4 November 2022 at 1:53PM
    Blimey, I thought that I'd asked a fairly straightforward question !

    Ok, here is the full transactional flow.

    The marketing company sends me an email to say that they've sold an item for me.
    They instruct me to provide service X on date Y to customer Z
    The total price the customer is charged is £30
    Comission is £3.50
    Vat on comission is £0.70

    I get £25.20 paid directly into into my account via Stripe - they control the entire payment process and they are VAT registered. 

    All services that I provide are made to individuals, & none are made to VAT registered companies.

    For VAT purposes, do I record the sale at £30 (the gross figure) or as £25.20 (the net figure) ?

    I am not a wholesaler or dropshipper - more accurately a service provider.

     
  • DullGreyGuy
    DullGreyGuy Posts: 10,264 Forumite
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    You are invoicing the customer and so your sale is £30 and so thats the number to use.

    Voluntary VAT registration is rarely a good idea unless your customers are all VAT registered or you sell zero rated products etc but hopefully you've already had professional advice
  • Mistral001
    Mistral001 Posts: 5,349 Forumite
    First Anniversary Name Dropper First Post I've been Money Tipped!
    edited 4 November 2022 at 2:11PM
    So you are getting work through an agency.  I would look at the terms and conditions of the contract that you have with this agency to see who has a contract with whom and for what. 
  • Murphy_The_Cat
    Murphy_The_Cat Posts: 20,967 Forumite
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    You are invoicing the customer and so your sale is £30 and so thats the number to use.

    Voluntary VAT registration is rarely a good idea unless your customers are all VAT registered or you sell zero rated products etc but hopefully you've already had professional advice

    Thank you very much, that is the figure that I'll work on.

    Yes, I have taken professional advice, which I why I'm going down the voluntary VAT registration route.  It'll only be a short term thing to enable me to reclaim the VAT on the large capital investment and then I'll de-register again.
    For the shortish period that the business is registered for VAT, I'll be able to reclaim several thousand £'s that I've paid over in VAT and I'll be liable to pay a few hundred £'s of VAT on sales.
    Overall, it'll work very well for me.

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