VAT can anyone simplifie it?

Question

I want to sell makeup and eperfumes and am trying to work out a business plan the problem is that i don't understand it and how it works. I get that I have to pay 17.5% tax and the buyer does so does my price have to be 17.5% higher? what happens when people claim back and what do they actually claim on please help very confused

Answer 1

Try the link below, it explains all you need to know about VAT and returns. But you may not even need to be VAt registered if your profits are below a certain amount.

Good luck.

Answer 2

When you start trading you should notify the income tax side of HMR&C but you do not need to register for VAT at that stage. At the end of each month you look back over the last 12 months and if you have exceeded £60000 [approx] in the rolling year then you have to notify the VAT side of HMR&C and you will then be registered from the end of the following month.

You add VAT at 17.5% to all your sales and keep a list of all VAT you are charged [certain exceptions such as new cars!] and at the end of each VAT period add up the VAT on all sales and VAT on all purchases. Take one from the other - if you're doing OK normally sales VAT will exceed purchase VAT - fill in a return and send off with a cheque

Answer 3

IF?? you have to be VAT registered, the simplest explanation of how it works is---- You buy goods at a cost (net) price of say £100.00, the seller will have to charge you VAT@ 17.5% (£17.50) so you pay £117.50 in total. If you sell these goods (or some of them) for a 50% profit you will be charging them at £150.00, to which YOU must add VAT @ 17.5% (£26.25) You charge your customer £176.25. The difference in the VAT amounts to £8.75, which you are due to pay to C & E VAT. along with any other vat due, but less any vat which you have reclaimed, e.g. fuel, telephone bill etc.

Answer 4

As Davy B says, you do not have to register until your taxable turnover, on a rolling twelve month basis, exceeds the registration limit. But I feel your question is more about the theoretical side of VAT and how it is charged. I apologise if this is not what you were looking for, but here goes.

The government raises taxes to pay for the services it provides. Our complicated system has developed over the years as successive governments have tried to make the level of contributions made by an individual as fair as possible. In doing this taxes have split into two distinct classes. Those based on income (such as the obvious income tax) try to match the contributions with the ability to pay. The second class is based on expenditure and is intended to have an aura of voluntariness about it. Most essentials are either not taxed or taxed at a low rate. In theory you have an element of choice about whether to buy items which are taxed more highly.

VAT is the prime tax on expenditure. When you buy something for your own use you are expected to pay this tax on it.

Now the government could collect this tax from every comsumer but that would be a nightmare to administer. So they ask the trader supplying the consumer to collect it on their behalf. This would work in theory but in practice there is a problem. When a trader sells goods it is not always to the final consumer. So they would have to charge tax if the customer wanted the goods for their own use and not charge if their customer intended to resell the goods. So VAT was developed.

This recognises that there is a chain from the manufacturer to the final consumer. Sometimes this chain is very short (as whe you buy goods from a factory outlet) and sometimes it passes through a number of distributors and wholesalers. A bit of the tax is collected at each stage in this chain.

Lets look at a hypothetical example, say a lipstick which retails at £4.70. (I'm making all these figures up by the way) This is basically £4 for the lipstick and 70p tax which the government wants.

The manufacturer makes the lipstick and sells it to a wholesaler for £1.20 but he adds 21p tax on so the price paid is £1.41. This 21p is paid over to the government.

The wholesaler sells to a retailer at £2 and adds 35p tax on making £2.35. This is where it gets clever. He then pays the government the 35p but deducts from this payment the 21p he has paid the manufacturer. A net payment of 14p

The retailer then sells it for £4 plus tax of 70p to the final consumer. She then pays over the 70p but deducts the 35p paid to the wholesaler so a net payment of 35p.

At each stage the government has received tax on the value added, hence the name of the tax. It has received (if I got my sums right)

21p from the manufacturer
14p from the wholesaler
35p from the retailer

A grand total of 70p which has been borne by the final consumer.

I hope you can follow this.

Answer 5

VAT is value added tax that is added to all non-essential/luxury items or services.

You charge VAT on to the price of your goods, usually when you invoice, as you add it to the total. You then will need to forward this money to the tax man. You only need to do this if you are turning over more than £50,000 a year.

No one should claim it back from you direct, this would be between them and the tax man or their accountant.

Answer 6

The best suggestion i can make is you take a look at the HM Revenue & Customs website and look under the VAT section there is advice for setting up business and charging etc, hope that helps.

Answer 7

Speak to your local Business Links advisor (if you are in England) of Business Gateway (if you are in Scotland) they will help. No matter where you are located there will be an organisation whose purpose is to help you understand these requirements and help you to succeed.