How Does VAT Work? (2)
My soap making example might then look like this:
I buy my raw materials for £100 plus VAT at 17.5% giving a total of £117.50.
Therefore my input tax, ie the money I can claim back from HM Customs and Excise, is £17.50.
I then re-sell these goods to my customers for £150 plus VAT at 17.5% giving a total ifgure of £176.25.
Therefore my total output tax, ie the money I owe HM Customs and Excise is£26.25.
My return will then be as follows:
Total output tax £26.25
Less total input tax £17.50
Total owing £ 8.75
In reality I may actually be able to claim back more input tax as I can claim back VAT on anything I have to buy to produce my final goods. Therefore if I have petrol expenses I can claim back the element of VAT included in petrol and so on.
I am unregistered for VAT. Here I simply buy my raw materials for £100 plus VAT = £117.50 and then sell them to my customer without having to charge VAT.
Cost of raw materials would be £117.50 because I cannot claim back the VAT, however I do not have to charge VAT on my finished product, which means that I do not have to add 17.5% VAT to the final price I charge my customer.
Related posts:
- How Does VAT Work? Let’s take the following example based on the usual rate...
- Items which are Exempt from VAT A full list of items that are exempt from VAT...