Hello, we are using the VAT margin scheme on our sales of products (memorabilia and art) that fall into the scheme (pay 16.67% on the difference between the purchase and sale price of the item) and looking for advice on how this should be calculated, also taking into consideration the amount received in the bank is lesser the card terminal fees.
We are using Xero for managing our accounts and bookkeeping. From a little research online we have found Xero to be complicated for these calculations.
However, there is a workaround which requires more work but I would like to hear others thoughts on this before we proceed.
For example, a product which qualifies for the VAT margin scheme sells for £260.00 (£260.00 charged on our iZettle card machine)
The amount actually received in the bank is £255.45 because iZettle takes their fee of 1.75% of every transaction and this is taken before the funds reach our bank account. Our bank account shows £255.45 received. No record of the £4.55 iZettle fee as it is charged before we even see the money from this sale.
Based on this sale example above, we have calculated this as follows:
Purchase price of item - £20.00
Sale price of item - £255.45
VAT (using VAT Margin Scheme) should be paid on 16.67% of 235.45 (sale price minus purchase price of item).
VAT payable = £33.64
However, my concern is that the amount on the invoice to the customer is £260.00 but the amount received in the bank account is £255.45.
Do we pay VAT on the amount which is received in the bank account, or the total sale price (money received + izettle fees)?
It doesn’t make sense that we should be liable to pay VAT on the £4.55 iZettle fees when that money never actually comes into our accounts.
Please note, the invoices for customers will not show standard VAT amount breakdown as we are using VAT margin scheme so I am also unsure how this should be shown to customers.
To clarify my questions are as follows:
1. Should we pay VAT on only the amount received in the bank account? – based on the example above, the amount liable for VAT would be £235.45.
2. Should we make a note at the bottom of our invoices to say that we are using VAT margin scheme, therefore standard vat is not applied?
Would we show ZERO vat on the invoices or should it show 16.67%? This is more complicated as you calculate this by working out the margin of sale price minus purchase price – customer should never be able to see our original purchase price of the item sold.
3. If a customer asks for a VAT receipt, how should this be processed?
Thanks for your help and I look forward to the advice anyone can offer on this.