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bigduckontax
bigduckontax, Accountant
Category: Tax
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We provide a retail service. We have a website and we resell

Customer Question

We provide a retail service. We have a website and we resell groceries from a particular store. We add a 15% markup on all products (our margin) and our delivery fee is £4.5
How should we pay VAT? Can we just calculate the amount of VAT from our profit, which is (15% markup + £4.5 delivery fee), take 20% and add the 20% at the final bill on our website, stating (VAT included) and let the customer pay the VAT? Here is the example:
1) Imagine the grocery bill is £20
2) We add 15% markup, which is now £3 and also our delivery fee of £4.5
3) The bill with our margin and the delivery fee is now £20 + £3 + £4.5 = £27.5
4) The final bill with VAT is then £27.5 + 20%*£7.5 = £29 (So we let the customer to pay £1.5)
Submitted: 6 months ago.
Category: Tax
Expert:  bigduckontax replied 6 months ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

Unless your turnover reaches or approaches 83K in any one year you can forget about VAT.

Why would your customer pay GBP 1.5 to settle a 29 quid bill? 27.5 plus VAT is 33, not 29. Your arithmetic seems a tad odd.

Customer: replied 6 months ago.
It is £29, as our margin with delivery fee is £7.5, so the VAT should be 20% from that amount, not from the whole bill (as grocery store that sells the groceries already has VAT included)
Expert:  bigduckontax replied 6 months ago.

But what about your overall turnover and VAT? That is critical.

Customer: replied 6 months ago.
Sorry, I did not get your last question. Our turnover is higher than 83k, so we should pay VAT.
Expert:  bigduckontax replied 6 months ago.

Your VAT accounting seems a trifle odd.

Any goods and services you buy in are debited net to your cost of sales and the VAT thereon to Input VAT.

On any sales you make you aggregate everything including the delivery charge, calculate VAT at the standard rate and credit the total less VAT to Sales and the VAt to output VAT. The difference between the two VAT ledger heads will be th tax owning to the VATman quarterly.

Your treatment of the delivery charge is incorrect. You should be charging the net cost to the customer, adding the relevant VAT thereon to the bill and recovering the VAT charged by the delivery agent in your accounts.

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