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pattesons pattesons is offline
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Join Date: Aug 2009
Posts: 18
VAT issue

Hi,

I hope you can help with the following issue. I own a web design agency, i manage an ecommerce website for a company, eg. marketing, updates, maintenance etc. I receive a 10% commission on total price of all sales the shopping cart takes. The companies shopping cart prices include delivery and VAT. I'm not VAT registered, they are now saying i have to take the commission off the amount of VAT that was included in the price. So for example the shopping cart sells a product for £100, i normally receive £10 but now i have to take off £1.75 for the VAT.

They are saying they have to do this as it's illegal 1) on my part to charge on the VAT and 2) on their part for giving a commission on VAT.

My accountant is away until wednesday and i would also like to get a few other opinions on this as well, we are under a contract for 10% commission per order. Let me know what you think.

Thanks
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missfituk's Avatar missfituk missfituk is offline
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They are right it would be illegal to give commission on vat, likewise for you to charge vat as you're not a vat registered business.

The correct thing to do would be to give you 10% of the product price excluding VAT. Even if you were VAT registered this wouldn't make any difference - you are in effect the seller just like they are, and you have to charge your customer VAT. Even if you were VAT registered the only difference it would make would be that you could reclaim the vat paid - but Im guessing as a web designer you dont buy very many things that have VAT added except maybe software and domains, which probably aren't worth registering for as you'd then have to charge all your customers 17.5% (soon to be 20%) on all the design/web work you do.

So unfortunately your colleagues are correct, I am assuming they have just become VAT registered and it wasn't an issue before? They have obviously chosen to absorb the vat into their retail price rather than adding the VAT, so basically to put it in simple terms they have reduced the retail price from £100 to £82.50, so now you get £8.25 instead of £10.
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m8internet m8internet is offline
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You are not VAT registered, so VAT does not come into it

If the customers are paying £45.00, then you receive £4.50 and that is it
Sounds to me like your client is trying to wriggle out of the VAT, put the burden on you, and lower the commission due

Wait until you get this in writing from your accountant, plus ask them to supply a copy for your client

Equally, if they argue you should deduct the VAT, then you would also need to deduct the delivery charge
You would then need to know what this is/was for every order or accounting period
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missfituk's Avatar missfituk missfituk is offline
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Quote:
Originally Posted by m8internet View Post
You are not VAT registered, so VAT does not come into it

If the customers are paying £45.00, then you receive £4.50 and that is it
Sounds to me like your client is trying to wriggle out of the VAT, put the burden on you, and lower the commission due

Wait until you get this in writing from your accountant, plus ask them to supply a copy for your client

Equally, if they argue you should deduct the VAT, then you would also need to deduct the delivery charge
You would then need to know what this is/was for every order or accounting period
I dont mean to be rude, but do you just make it up as you go along?? I dont think I've read one accurate piece of advice youve posted in the 2 years Ive been on here and I'm starting to lose patience!

1) "If the customers are paying £45 then you receive £4.50" NO! The customer is paying £45, this is made up of £37.20 + £7.80 VAT. He CANNOT give the OP 10% of the VAT, it ALL goes to the VAT office in his VAT return! So essentially the sale is only for £37.20 NOT for £45.00 therefore the commision is £3.70.

(A whistestop idiots guide to what VAT is because we clearly need it: Value Added Tax, a tax on the value added between what something costs and what it sells for. You reclaim the VAT on what you pay, and charge vat on what you sell - the bit in between is the Value Added Tax (VAT) which is what the government takes. A VAT registered business submits quarterly VAT returns where they list all the VAT they've paid out in that quarter, and all the VAT they have charged their customers. Then they look at all the VAT they've charged their customers, and deduct all the VAT they have paid out in expenditure and calculate the VAT bill, if the business has paid out more VAT than they have accrued this results in a VAT rebate)

2) "If they argue you should deduct VAT then they also need to deduct the delivery charge" NO again. Why? There are no laws against what you can charge for delivery, or what you do with that money. It is entirely up to the site owner whether he wants to pass on 10% of the delivery charge, and this should have been agreed when the contract was made - not to confirm such basic technicalities is amateur at best, completely idiotic at worst. If the shop agreed to give 10% of delivery at the time of arranging the deal, then that has nothing whatsoever to do with VAT. Vat is out of the hands of the site owner, he charges VAT which is paid quarterly to the Vat Office - he simply cannot go giving some of it away!

And before I get a 'please be nice to forum users' message from the powers that be, NO I wont be nice to people who consistently give compeltely false advice -if you aren't sure about something, either don't post anything at all, or say that is what you think, but you're not sure. Giving out false information as fact time and time again doesnt help anybody.
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pattesons pattesons is offline
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Join Date: Aug 2009
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Thanks for taking the time to respond and clearing this issue up for me.
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James Smith's Avatar James Smith James Smith is offline
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Nikki is spot on about the VAT, and also the frustration in correcting posts made by people who whatever their good intentions quite frankly dont seem to know what they are on about.

Hot tip: Don't post about what you dont know.

On the commission, whilst I would ordinarily expect any % to be a % of the net price of the goods it is POSSIBLE that its 10% of the checkout price if thats what has been agreed, but only if thats what has been agreed. Your contract should spell all this out - if it doesn't then (a) get a better one next time (b) I think the assumption would be net price.

Regards,
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