Singing Pig

Hi Guys,

I have unearthed an opportunity to begin an online business, primarily through ebay.  It involves buying from a local wholesaler.  I believe that with the proper time and effort I may be able to make this work.

 I am not very experienced with VAT, but believe that my turnover may well exceed the VAT threshold of £64k? per year turnover.  I am trying to do my costings based on my limited knowledge.

Example (as I understand it):

Item Bought:  £100 + vat = £117.50

Item Sold on ebay:  £150 (inclusive of vat) or £127.65 + vat (£26.25)

On this transaction, I would owe vat of £26.25-£17.50 = £9.25

My overall profit would therefore be:

£150-£100 = £50

less £9.25 = £40.75

I understand that other fees such as ebay / paypal / income tax etc still have to be subtracted.

Can you please tell me, am i missing something here or does that pretty much sum it up.  Sorry for the long winded example, and any replies are much appreciated.

Thanks Again,

Keep it goin'

Hi

Not quite the right calculation as you're mixing inc and ex VAT figures.

Keep it simple by ignoring VAT for your own internal calculation figures.

So:

Sale price, ex VAT     £127.65

Cost price, ex VAT    £100.00

Profit before costs     £27.65

Trevor 

Yes, the way Trevor is telling you is by far the easiest way to work out your profit margins - VAT is irrelevant for that.

The other part of the equation for VAT purposes would be

 Output VAT (on the item you are selling) would be £127.65 * 0.175 = 22.33

Input VAT (on your purchase price) = £100 * 0.175 = £17.50

VAT payable to HMRC = £22.33 - £17.50 = £4.83

Remember you can claim back the input VAT on your expenses items too, where it is charged.

Thanks for that guys, the fog has lifted!!!

It has now become apparent that my margins will have to increase to make this viable.

Thanks Again,

Keep it goin'

VAT threshold is £67,000 for 2008/9 but you could start to trade whilst being under the threshold and not register for VAT.

 
This would mean that you wouldn't need to charge it on your sales which is useful if your customers are the public as opposed to VAT registered businesses.

This would mean for a £150 sales price that your profit is £32.50 (£150 less £117.50)

Where people tend to get stuck with this sort of a strategy is if things go well for them and they need to register for VAT (you cant ever make much money selling goods under the threshold - in this example £14,517 before all your costs are added) and then face a big drop in margins. So for a "hobby" bussiness (as many are on ebay) it may pay to just to sell a small volume and tuck under the VAT threshold but you will never make a lot from this.

Hope that helps

Regards,
 

Thanks for that James.