Hello,we are using the VAT margin scheme on our sales of products (memorabilia and art) that fall into the scheme (pay 16.67% on the difference between the purchase and sale price of the item) and looking for advice on how this should be calculated, also taking into consideration the amount received in the bank is lesser the card terminal fees.
We are using Xero for managing our accounts and bookkeeping. From a little research online we have found Xero to be complicated for these calculations.
However, there is a workaround which requires more work but I would like to hear others thoughts on this before we proceed.
For example, a product which qualifies for the VAT margin scheme sells for £260.00 (£260.00 charged on our iZettle card machine)
The amount actually received in the bank is £255.45 because iZettle takes their fee of 1.75% of every transaction and this is taken before the funds reach our bank account. Our bank account shows £255.45 received. No record of the £4.55 iZettle fee as it is charged before we even see the money from this sale.
Based on this sale example above, we have calculated this as follows:
Purchase price of item - £20.00
Sale price of item - £255.45
VAT (using VAT Margin Scheme) should be paid on 16.67% of 235.45 (sale price minus purchase price of item).
VAT payable = £33.64
However, my concern is that the amount on the invoice to the customer is £260.00 but the amount received in the bank account is £255.45.
Do we pay VAT on the amount which is received in the bank account, or the total sale price (money received + izettle fees)?
It doesnt make sense that we should be liable to pay VAT on the £4.55 iZettle fees when that money never actually comes into our accounts.
Please note, the invoices for customers will not show standard VAT amount breakdown as we are using VAT margin scheme so I am also unsure how this should be shown to customers.
To clarify my questions are as follows:
1.Should we pay VAT on only the amount received in the bank account? based on the example above, the amount liable for VAT would be £235.45.
2.Should we make a note at the bottom of our invoices to say that we are using VAT margin scheme, therefore standard vat is not applied? Would we show ZERO vat on the invoices or should it show 16.67%? This is more complicated as you calculate this by working out the margin of sale price minus purchase price customer should never be able to see our original purchase price of the item sold.
3.If a customer asks for a VAT receipt, how should this be processed?
Thanks for your help and I look forward to the advice anyone can offer on this.
You have said you can recommend a VAT expert - It would be really helpful if you can. Can we please make this arrangement?
You also said above your vat rate is NOT 16.67% but as I understand it is 16.67% for sales that are applicable for VAT Margin Scheme.
Try Les Howard of vatadvice.org, as I know Joanne (Cheshire) would recommend him.
But I think you also need a bookkeeper, because (with respect) you are woefully inept with some basic accounting knowledge. (1) The 16.67% you mention is not the VAT rate. You are maybe thinking of the percentage needed to deduct off a VAT inclusive price to get to the nett. (16.6666 recurring to be precise)
(1) Not intended as a slur, I don't expect any of my clients to know bookkeeping, but nor would I expect them to do it if they didn't have the knowledge required.
__________________
John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
Shortest lived forumite ever at 8 minutes? Well spotted AC.
Worth adding this in for future readers I think
In answer to the question, the OP was well out of their depth but if I've understood the margin scheme correctly, VAT is due on £240.00. The OP was kind of correct in saying that the VAT is 16.67% of that total but assumed that was the VAT rate. They were also under the impression that the sale price was after deducting Etsy fees, because the sum received in their bank was £255.45
So the calculation is as follows
Sale price £260.00 Cost Price £20.00 VAT Margin price £240.00 divide by 6 (or x by 16.67% )to get the VAT price which is £40.00 £200 + 20% is also £40 wallah!!
What I really want to know is where I can buy something for £20 and resell it for £260? £180 profit on one item is not to be sniffed at and it might tempt me to give up accountancy
EDIT to clarify the percentage
-- Edited by Leger on Friday 9th of October 2020 10:02:48 AM
__________________
John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
