It is essential that “sales” are recorded accurately for VAT and income tax/corporation tax purposes. The amount sent to your bank from various sources may not be the full sale price, as there may have been deductions before payment is made. As an example – holiday lettings – the agent’s fee is likely to have been deducted. So, you may have banked £820 but this is actually £1,000 income and £150 + £30 VAT agent fee.
If the business is VAT registered and applying the current reduced rate of 5% applicable to the hospitality industry, if the £820 is treated as sales then VAT of £820*5/105 = £39.04 is calculated a being payable. However, the correct position is VAT of £1000 *5/105 is due = £47.62 and VAT of £30 is reclaimable – net payable £17.62.
If the VAT flat rate scheme is in use, VAT would be understated.
The turnover figure is important in determining the requirement to either register for VAT or deregister, and it also affects the eligibility for other VAT schemes.
Other examples where sales need to be “grossed up” (this is not comprehensive):-
- Livestock sales and auctioneer’s commissions
- Sales via PayPal and eBay, Etsy etc.
- Food sales through Just Eat
If you require any assistance, please contact us.
