Reply To: Total novice here with a question about vat

Forum Categories GENERAL VAT DISCUSSIONS Total novice here with a question about vat Reply To: Total novice here with a question about vat

Trevor S

Bear in mind that although the impact of VAT to you is generally a percentage on your profit, its calculation must be on transaction level. Your sales and purchases must be treated separately. VAT isn’t like income/corporation tax, where you calculate a profit and work out the tax on that.

So your first set of detailed calculations are correct. But actually, the reason why your second set don’t give the same answer is because you’re calculating your profit as being VAT-inclusive sales minus VAT-exclusive costs. For a true profit calculation, both figures should be on a VAT-exclusive basis, as these are your true income and expenditure figures after you’ve submitted your VAT return.

On the membership scheme, do you make any charge for joining? If you do, you need to consider the VAT treatment of membership income. If in reality the benefits of membership are little more than being entitled to a discount on future purchases, membership fees are likely to be VATable – because they’re seen as further (advance) payments for the items that will be bought.