VAT question

Sorry to have come to this conversation a bit late.

I agree with Anthony. Unfortunately @longk just made a typo

The VAT on 280 is 46.66

Most calculations for working out gross profit are quite easy. Whether you want to include VAT in Gross profit or Net profit calculations is simply a matter of preference when trying to work out whether the sale price is viable. The accountant will place expenditure in the relevant categories.

A simple way of working out the VAT content on the inclusive sale price is just take one sixth of it.

If you're only looking at being able to work out how much profit will be left to put all the other expenses against, then it's easy.

Using your example:

Sale price £890 + VAT @20% = £1068 (£178 VAT)

Costs £672 inc VAT @ 20% (so £560 net, £112 VAT)

So you're comparing two Net figures first. £890 less £560 = £330

(VAT on sale price is £178) less (VAT on purchase price is £112) = £66

Take £66 from £330 = £264 that you have left to allocate all other expenses against.
(You took your VAT on the purchase price twice!)

I'm not quite sure what you're asking us to sort out. Is it simply a way of calculating what to charge for an item?

If all items cost an equivalent amount in materials and labour then it's dead easy. If the figure above (£264) is a sufficient margin then you can take the percentage mark-up that you have got on your example and use it across the range.

In your example the gross cost price is £672 and your gross sale price is £1068 - which is a mark up of 59%. 672 x 1.59 = 1068.48

If there are different cost elements in each different product then you may have to think how to go about it - but I don't think that you are being asked to work out how to calculate a price to make sufficient profit for the business. That's their accountant's job.

PM me, or email, if you need more info and don't think anyone would be interested in the nitty gritty bits.

I shan't be around for the rest of the day (I'll be quite near you )

 

There is a considerable back story to this business, but in short the current proprietor gained control/ownership following a somewhat acrimonious family breakdown, prior to which attempts had been made to run the business into the ground. That, coupled with the fact that the proprietor also suffered heavy losses through this breakdown means that the business is now in a fledgling state (viable, but renamed and very little cash capital). A relative of the proprietor is a good friend of mine, and is currently supporting the business with some capital and admin/management skills [basically a partner in the business], hence my involvement. I am not charging for my time/product (although there may well be maintenance fees involved once the business is on its feet) - in return, I am essentially getting free word of mouth advertising which may or may not bring me profitable work.

The accountant would be more than happy to be involved, I am sure, but they would certainly charge for their time and that is a cost that the business cannot bear at this point.

Absolutely - the cost of some of those packages is horrendous, and some are not entirely user friendly. My friend has worked with my packages before, and knows my build ethos backwards, and (somewhat pleasingly) wants one of my packages over anything else, even if cost was not an issue.

 

@shiney - Thank you

In short, I believe that I have managed to arrive there yesterday evening. One of the sets of sample data I have in there now:

Sale Price - £1530 = VAT @20% (£306.00) = £1836.00

Costs - £1152 inc VAT @20% (£192 VAT, £960.00 Net Costs)

VAT due to HMRC = £114 (£306 - £192)

Gross profit - £570


As a matter of interest, am I right in thinking that the margin would then be 59.38% (£570/£960 x 100)?

I am having nothing to do with price setting or telling them how to make a profit - the desire was for the software to show a gross working figure to give them a rough idea where they were with each job; prices etc are all entirely variable by them, all I was needing to do is to make sure that the correct calculations are done regardless of the prices or VAT percentages that they input.

@Scrungee - it is not the intention to have the package calculate EBIT; as you rightly say, that would be nigh-on impossible. All that was required was as a guide to show roughly where they are at any point in time.

 

Thanks all

I have now built both the income & expenditure ledger and the VAT sales and paid ledger, all divided into the relevant columns, and I am pleased to say that the SQL worked first time when processing payments to a sale and back to the ledger

As is always the way with these sort of things, there are periods where you will sit and tweak and almost go round in circles for a wee while and then you will get a day where everything takes a huge leap forward.

 

Not sure I am with you @Scrungee - there is no labour element involved, either for the supplier/contractor or on the sale itself. Without divulging too much info regarding someone else's business, a service is provided at a set price (there are pre-prescribed prices that relate to the size of the job involved) and all services will be VAT bearing at full current rate - currently, that rate is set to 0% as they are not yet registered); in theory, the way I have designed the package, it is possible to set any rate for VAT (5%, 17.5% etc) should the need ever arise and that can be done on the input side as well as the output side.

The costs are equally fixed, again with a pre-prescribed tariff depending on size of job etc. Gross unit cost can be manually over-ridden and the VAT paid is calculated on the rate that is manually set.

I am awaiting word back from the owner to see if he wants each order line to have a variable VAT level, as opposed to calculating it on the order as a whole.

For the avoidance of doubt, this is NOT intended to do their accounts or tax returns for them - their accountant will still have to do 'the books' - this package is essentially an overblown POS package that allows them to produce invoices/receipts, delivery notes etc with a few aspects of asset management (in particular daily use and servicing records for LGV/PCV/HGV type vehicles).

 

On their sales, there is no human input that is billed separately - wages are not accounted for within this package, and there is no billable hours.

My time would be billed at a fixed rate from me to the business (agreed price in advance), and I am not VAT registered. Obviously, I would have to ensure that I declared that income to the HMRC for income tax purposes, as currently my salary is my only income and that is PAYE.

Think of the design as a big till that just happens to be able to record expenditures also. It is not an accountancy system (although if it compliments accountancy at some stage in the future, then fine and dandy).

My example uses 20% VAT rate as that is the rate that they would have to use as and when they are registered; currently, they are below the threshold, but taking an optimistic view and knowing the unit prices for each of their jobs, it is entirely possible that they will have to be registered in 12-14 months time - hence, I am building the capability in at this stage.

Essentially, I am trying to cut down my maintenance liability also (not least as this is currently a freebie), to ensure that I don't have to revisit their package too often. And whilst I am responsible for a very large, multi-site, multi-user, multi-faceted package at work, this is my first foray into the POS arena. I am also keen to give myself a sound basis to work from in the future that I can adapt reasonably quickly should I be approached by anyone wanting a similar package.