Is VAT Reclaim the only way to profit for me?

[amhsoftwaresltd]

I'm in the process of starting up a store on E-Bay & a little confused.

The products that I intend to sell have quite low profit margins. From my understanding, E-Bay automatically deducts VAT when a product is sold & sends it to HMRC (if VAT registered). 

So if I sold a product for £100, E-Bay will send £20 of that to HMRC automatically & give me whatever is left (after fees). The problem is that E-Bay would be sending too much VAT. This is because; if I bought the product for £50 from my wholesaler. I already paid £10 in VAT so I actually only owe the HMRC £10. 

I know that I can reclaim this in my quarterly VAT return but the products I intend to sell already have a very low profit margin. This means that after E-Bay fees & VAT deduction (which are all relative to the sold price) I will be making a loss on the sale until I do a VAT reclaim.

Is my understanding of all this correct? I haven't been able to find any post or information regarding this.

[messier44000]

Unless you are high volume, eBay + low profit margins minus their slice of the pie do not mix.

Either that, or like many do , sell at full RRP or above.

Hence why 99% of what I sell is on the website.

If you have an accountant, have a chat with them , who should help do some 

number crunching with you.

Edit - Correct me if I am wrong.

You pay HMRC vat on sales when you do the 1/4 vat returns, not eBay.

[game_raid]

You need an accountant urgently because you are way off with your calculations, you should always ignore VAT when you are calculating your gross profit.

You bought the item for £50 the the £10 VAT is irrelevant because it's not yours.

I am not sure where you are getting the you owe £10 from? If you sold an item as per your example you collect the VAT of £16.67 from the sale and remit that to the HMRC eBay is not part of the VAT collection it is the sellers responsibility.

VAT is tricky to deal with and it is always best to get someone who is qualified to deal with it for you, it can end very badly if you submit the wrong figures to the HMRC.

As a tip Google eBay fee calculator to give you a better idea of profit per item sold.

[messier44000]

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@game_raid wrote:

"VAT is tricky to deal with and it is always best to get someone who is qualified to deal with it for you, it can end very badly if you submit the wrong figures to the HMRC."

Hence why I have an accountant to do my returns and end of year books. 

Costs more, but know its done right, and leaves me get on with running the business 

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[amhsoftwaresltd]

Oh thank you for correction, it was something that had me a little worried.

I read somewhere that E-Bay deducts the VAT you owe & "remits it to the appropriate tax authority". But I guess I interpreted it wrong or something idk.

[arkwebus]

EBay does [in certain circumstances] add the VAT to imported goods and then sends that to HMRC.  It is not involved in UK transactions.   EBay's fees have VAT on them and - if you are a VAT registered trader - you can claim back the VAT on your VAT returns.

@amhsoftwaresltd 

[ojewellery]

Are you a UK based person or based outside the UK?

If you're UK based you don't need to VAT register until your gross turnover is approaching 90k in a rolling year.  If you're outside the UK then its very different how things are handled which might be what's leading to the confusion.

[amhsoftwaresltd]

I'm based in the UK and selling in the UK.

To put it simply. I thought that E-Bay would deduct the VAT I owe to HMRC from my sale of a product & give it to them.

So like if I sold something for £100. I thought that they would send HMRC £20 of that & then deduct fees from the remaining £80 & give me whatever is left over.

[therenewalworkshopltd]

Are you, or are you not registered for VAT in the UK?

The one listing you have, does not show a VAT number, so I am guessing that you are not.

However, if you are registered, then you need to ensure that information is held by Ebay.

So as it stands, unless you sell more than the current VAT threshold, you have no need to be registered for VAT.  In which case, except for circumstance already pointed out, you will not collect, nor pay VAT.

I would strongly advise that you speak to an accountant and understand exactly what it is that you are doing before trading as otherwise, you are likely to lose money.

And of all the things that you can get wrong, VAT is probably the worst one.  So be sure to understand it first.

[myriad*seller · Accepted solution]

eBay deducts the VAT and remits it to HMRC on INTERNATIONAL transactions ONLY

All the other transactions YOU deal with the VAT and HMRC

[game_raid]

Using the website I gave you this would be your calculations below, this is using the computers category with no promoted listing fee and a shipping fee of £6 which I don't know what service you use but be about right to cover the value of your item listed.

You mentioned as example buy for £50 + VAT  and sell for £100

eBay Fee: £12.66

Total FVF: £9.90
FVF rate: 9.9%
Transaction fee: £0.30
Regulatory Operating fee: £0.35
20% VAT: £2.11

Total Profit: £17.78

Profit margin: 17.78% of sold price

You can claim the VAT of the item cost(+£10), shipping cost (+£1) & eBay fee (+£2.11)
The government takes the VAT of the sold price(-£16.67)

I don't know if you sell on other platforms but if you are nowhere near the VAT threshold do not even think about it yet, just monitor your turnover every 2-3 months.

[bricklanebargains]

Ebay does not deduct VAT for sales to UK buyers. If you are VAT registered, you need to file a VAT return with HMRC (quarterly for most businesses) and you will need an accountant to do this for you. Ebay only deducts VAT for sales to European Union countries for items below 150 euros as far as I know. Ebay may deduct sales tax for sales to USA, Australia or Canada. As another user said, VAT is a complex subject and requires the help of an accountant.