VAT before or after expenses

worc

I’m trying to figure out how much VAT I will owe the Revenue from the sale of a product. To give a clear example, say I sell a product for €100 that will require 21% VAT. The way I’m doing it is that the €100 price shown on the site is inclusive of shipping and VAT - basically from speaking with possible consumers they like the idea that the price they see is what they pay and not clicking to add a product to a cart then to see VAT added and shipping costs added etc. This €100 will apply whether buying from Ireland or UK, so basically I will make a different net profit on each sale depending on country of purchase due to different shipping costs but I'm ok with this for the consumer satisfaction value of not getting hit with additional costs at the checkout stage. Just for this example please negate the intra-community VAT policies and that exports to say US are VAT exempt.

Which is correct?

Option A
Sale price: €100
Sale price minus shipping cost of €20 = €80
Materials to make product are €30 so €80 minus €30 = €50
So then VAT is 21% of €50 = €10.50
Net profit: €50 - €10.50 = €39.50

Option B
Sale price: €100
VAT is 21% of €100 = €21
Sale price includes shipping = €20
Materials to make product = €30
Net profit: €100 - €21 - €20 - €30 = €29

So I think what I’m trying to find out is do I need to take the 21% VAT on the full sale price charged to the end consumer regardless of what expenses are included in this price, or do I subtract all the expenditure that is required to get the product made and shipped to the purchaser before working out the 21% VAT?

Really hope that makes sense – sorry if it’s long winded or doesn’t make much sense.

shuyin1

worc wrote: »

I’m trying to figure out how much VAT I will owe the Revenue from the sale of a product. To give a clear example, say I sell a product for €100 that will require 21% VAT. The way I’m doing it is that the €100 price shown on the site is inclusive of shipping and VAT - basically from speaking with possible consumers they like the idea that the price they see is what they pay and not clicking to add a product to a cart then to see VAT added and shipping costs added etc. This €100 will apply whether buying from Ireland or UK, so basically I will make a different net profit on each sale depending on country of purchase due to different shipping costs but I'm ok with this for the consumer satisfaction value of not getting hit with additional costs at the checkout stage. Just for this example please negate the intra-community VAT policies and that exports to say US are VAT exempt.

Which is correct?

Option A
Sale price: €100
Sale price minus shipping cost of €20 = €80
Materials to make product are €30 so €80 minus €30 = €50
So then VAT is 21% of €50 = €10.50
Net profit: €50 - €10.50 = €39.50

Option B
Sale price: €100
VAT is 21% of €100 = €21
Sale price includes shipping = €20
Materials to make product = €30
Net profit: €100 - €21 - €20 - €30 = €29

So I think what I’m trying to find out is do I need to take the 21% VAT on the full sale price charged to the end consumer regardless of what expenses are included in this price, or do I subtract all the expenditure that is required to get the product made and shipped to the purchaser before working out the 21% VAT?

Really hope that makes sense – sorry if it’s long winded or doesn’t make much sense.

Option B 50/50 chance 21% of [80+20]=21. You'd need to seperate del in the invoice for your trading profit/loss.

Can't you look at it like this

VAT on sales in Ireland
VAT on sales to UK

VAT on purchases

Top 2 added - the bottom one is what you owe.

worc

Thanks for the replies - the way you guys have said I should do it was how I originally thought. However - I meant to include this - there is no VAT chargeable on anPost registered post, therefore it seems to me that by charging VAT on the full €100 which is inclusive of the anPost €20 postage i.e. charging €21 VAT I would have effectively been adding VAT onto the postage.

In other words, say I sold the product online without including the shipping cost, people would see the product listed for €80 which would include 21% VAT equalling €16.80. When clicking to buy they would then see €20 added for shipping, and this €20 would not have VAT added on because anPost would not have charged me any VAT.

Just to forget about the material costs for this one -

€100 sale price
€20 VAT exempt anPost shipping
Therefore - the product itself is only €80, not the full €100 because this €100 includes the shipping. So VAT is only included in the €80 price equalling €16.80.

The example above is how I thought it should be after reading more of the VAT guides - but what confuses me is that if the shipping is an added price that I can remove the sale price like that, then are the material costs of €30 also allowable as a deduction from the sale price before calculating VAT?

Thanks for taking the time to read this!

worc

worc wrote: »

The example above is how I thought it should be after reading more of the VAT guides - but what confuses me is that if the shipping is an added price that I can remove the sale price like that, then are the material costs of €30 also allowable as a deduction from the sale price before calculating VAT?

Thanks for taking the time to read this!

No
You're over complicating it

VAT on sale
VAT on puchases
(look at both of them completely indivisually)

you give the revenue dudes the difference
That takes into account the VAT you paid on materials.

djk1000

worc wrote: »

Thanks for the replies - the way you guys have said I should do it was how I originally thought. However - I meant to include this - there is no VAT chargeable on anPost registered post, therefore it seems to me that by charging VAT on the full €100 which is inclusive of the anPost €20 postage i.e. charging €21 VAT I would have effectively been adding VAT onto the postage.

In other words, say I sold the product online without including the shipping cost, people would see the product listed for €80 which would include 21% VAT equalling €16.80. When clicking to buy they would then see €20 added for shipping, and this €20 would not have VAT added on because anPost would not have charged me any VAT.

Just to forget about the material costs for this one -

€100 sale price
€20 VAT exempt anPost shipping
Therefore - the product itself is only €80, not the full €100 because this €100 includes the shipping. So VAT is only included in the €80 price equalling €16.80.

The example above is how I thought it should be after reading more of the VAT guides - but what confuses me is that if the shipping is an added price that I can remove the sale price like that, then are the material costs of €30 also allowable as a deduction from the sale price before calculating VAT?

Thanks for taking the time to read this!

€100 sale price, take away the €20 which you say is vat exempt. So the actual gross selling price of the product is €80. Remember that vat is 21% added on to the net price.

Gross price = net price + vat
121% = 100% + 21%
€80 = €66.12 + €13.88

That means that the net price is €66.12 and the vat element is €13.88

Add up all the sales vat at the end of the period, subtract all the vat you paid according to your purchase invoices, the balance is what you owe the revenue.

worc

RoverJames wrote: »

You're over complicating it

I think that's a pretty good description of what I've been doing!

Thanks for the replies - all is clear now.

PhoenixTax

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