VAT calculations on multiple items

[peterb]

Have you asked HMRC?

Howerver if (as a wholesaler) you bought 1 millian screws at 1p each you would pay VAT on the line )ie, 1 million screws. You would claim that back. When you sold the screws at (say 2p in multiples of 1000 you would receive VAT whether you charged per line or per invoice - which you pay to HMRC. As a retailer selling them to a non-VAT registered user you don't have to supply a VAT invoice, so how you apply VAT is immaterial - it applies to the total goods/services - so it is the bottom line.

Since everyone in the supply chain (assuming they are VAT registered) supplies a VAT invoice that shows how the VAT is calculated, charged and claimed back, it doesn't really matter.

http://www.hmrc.gov.uk/vat/managing/...t-invoices.htm

You might of course give the screws away as a promotional offer. No sale, so the customer pays no VAT, so you don,t pay any to HMRC, even though you claimed back the VAT you paid when you bought them.

[finlay666]

Since everyone in the supply chain (assuming they are VAT registered) supplies a VAT invoice that shows how the VAT is calculated, charged and claimed back, it doesn't really matter.

Not everyone is vat registered you see, as it's B2C, It was to do with rounding issues as it's stored to 4dp but obviously only shows 2 so has to round, but it seems the rounding isn't too big an issue

so a customer ordering a number of items would see a different total due to the way it's calculated, and the price shown is inclusive of vat, but rounded, it's a bit complex and very open to interpretation

[aidanjt]

Why bother with per item? Just add up all the items in the same tax bracket, apply VAT to the sum, and repeat for the next bracket.

[Lucio]

Well, my company deals in items with similar issues on VAT calculations; we generally calculate on a per line basis and do the rounding at the end of the line (e.g. item costs 0.3674 per item, multiply by quantity, perform VAT calculation and then round to 2 decimal places)

[Saracen]

mycarsavw gave the link in post #10, and there are various ways it can be done, providing it's done in a way acceptable to HMRC, and providing one basic principle is followed, that being that whatever you charge the customer and whatever you pay to HMRC must be the same. So .... no messing around with rounding errors to pocket the difference.

Beyond that, it depends on the basis on how you operate VAT, such as whether you're on a retail scheme or not, and as long as you're not, there's a couple of acceptable ways of doing it either by line, or by unit/article. And then, round the total on the invoice down to the nearest 1p.

Why bother with per item? Just add up all the items in the same tax bracket, apply VAT to the sum, and repeat for the next bracket.

Because HMRC define what acceptable methods are, and that isn't one of them.

Would they care if you did it that way? Probably not, as long as the differences involved were trivial. But it's worth remembering that the VAT legislation says that the trader is responsible for the VAT due, whether he collects it or not. So if you do it that way, and get audited, and HMRC notice the method is not permissible and the impact is that they are out of pocket, then YOU get to pay the difference, even if you can no longer collect it from our customers. If it's due, it's due, and HMRC don't care whether you pay it yourself or collect it from customers, but if it's due, they'll expect it to be paid.

In reality, the bulk of the time, unless you're talking about very large differences, they won't much care provided you follow the basic principle in my first para, but you break that one at your own risk.

[aidanjt]

Because HMRC define what acceptable methods are, and that isn't one of them.

Would they care if you did it that way? Probably not, as long as the differences involved were trivial. But it's worth remembering that the VAT legislation says that the trader is responsible for the VAT due, whether he collects it or not. So if you do it that way, and get audited, and HMRC notice the method is not permissible and the impact is that they are out of pocket, then YOU get to pay the difference, even if you can no longer collect it from our customers. If it's due, it's due, and HMRC don't care whether you pay it yourself or collect it from customers, but if it's due, they'll expect it to be paid.

In reality, the bulk of the time, unless you're talking about very large differences, they won't much care provided you follow the basic principle in my first para, but you break that one at your own risk.

Wait, so they force you to use mathematically imprecise methods so they can screw fractions of a penny out of you? Sickening.

[Saracen]

Wait, so they force you to use mathematically imprecise methods so they can screw fractions of a penny out of you? Sickening.

No. They actually define procedures whereby generally you round the VAT down.

If you round down per item, or per line, you're going to end up with the same or a lower figure than if you lump all the items in together and then calculate the VAT.

But it's more than that. It's about accounting, too. Not all items have VAT at standard rate. Some are zero-rated, and some are exempt. And you MUST get those right, too. So you, or your accounting systems have to be able to determine VAT either by item, or by line anyway, because the VAT code and hence VAT charged can vary per item/line. My invoices regularly do, with zero-rated items on them.

The point is not to try to screw pence out of people, it's to get everybody using the same rules, but those rules HAVE to be versatile enough to cope with the various situations people in different circumstances will find themselves in.

If you operate the rules properly, you will be charging the correct VAT and assuming you pay it, HMRC don't come after you for it.

Also, if I remember correctly, HMRC will allow you to round up or round down, at your choice. The rounding down is a concession, but you don't have to take it. What you do have to do is to pay over any VAT you charge. What you charge and what you pay over MUST be the same (obviously, with input VAT taken into account).

What they do have is rules that prevent people using the rounding error as a profit centre, and quite right too. A fraction of a penny profit from a rounding error on each item would end up as a LOT of money if you are, for instance, Tesco.

[finlay666]

Wait, so they force you to use mathematically imprecise methods so they can screw fractions of a penny out of you? Sickening.

Unless you can charge fractions of a penny, all of them are imprecise, the importance is on how they are imprecise as to how it is acceptable.

These aren't fractions of a penny when it adds up

http://en.wikipedia.org/wiki/Salami_slicing

[aidanjt]

No. They actually define procedures whereby generally you round the VAT down.

If you round down per item, or per line, you're going to end up with the same or a lower figure than if you lump all the items in together and then calculate the VAT.

But it's more than that. It's about accounting, too. Not all items have VAT at standard rate. Some are zero-rated, and some are exempt. And you MUST get those right, too. So you, or your accounting systems have to be able to determine VAT either by item, or by line anyway, because the VAT code and hence VAT charged can vary per item/line. My invoices regularly do, with zero-rated items on them.

The point is not to try to screw pence out of people, it's to get everybody using the same rules, but those rules HAVE to be versatile enough to cope with the various situations people in different circumstances will find themselves in.

If you operate the rules properly, you will be charging the correct VAT and assuming you pay it, HMRC don't come after you for it.

Also, if I remember correctly, HMRC will allow you to round up or round down, at your choice. The rounding down is a concession, but you don't have to take it. What you do have to do is to pay over any VAT you charge. What you charge and what you pay over MUST be the same (obviously, with input VAT taken into account).

What they do have is rules that prevent people using the rounding error as a profit centre, and quite right too. A fraction of a penny profit from a rounding error on each item would end up as a LOT of money if you are, for instance, Tesco.

Huh? That's why I said group the items which are in the same tax bracket, then add their VAT, move on to the next group, rise, wash, and repeat, etc..

[finlay666]

Huh? That's why I said group the items which are in the same tax bracket, then add their VAT, move on to the next group, rise, wash, and repeat, etc..

That isn't per line, or per item... which is defined as not acceptable

[aidanjt]

That isn't per line, or per item... which is defined as not acceptable

On what basis? The calculation is more efficient and more accurate and any remainder decimal places after 2nd can be rounded up or down as mathematics dictates in the total. Don't get me wrong, I can certainly understand why when VAT law was written that per-line/item was optimal, because cash registers were extremely limited, but these days PoS terminals aren't severely strapped of memory, and there's no need for such a retarded method.

[scaryjim]

On what basis?

The basis that the people who adminster the entire freaking system won't accept it?

Now, the basis of that decision from HMRC is anyone's guess, but ultimately that's their decision and you have to follow it if you deal with calculations of VAT. So VATing all of the VATable items on an invoice at once *is not acceptable*. You do it by item or line. That's how the system works. Sometimes you just have to put your own opinions away and work with it.

[chadders]

You would assume it's line-level because that looks better on an invoice:- qty 1,000 screws @ £0.01 each as opposed to 1,000 lines

Hence, then showing a VAT column (or not and showing total VAT @ X.XX% at total but it's done line by line)

My comment on storing VAT inc/ex is more about recording how you've done it - eg charging postage at £5.00 inc VAT at old rate of 17.5%

If you take the £5.00 and knock VAT off it's £4.26 so £0.74 is VAT and that's what we would store.

Then some numpty comes along and codes £4.26 plus VAT @ 17.5% is £5.01

[finlay666]

On what basis?

Because the man says so

Chadders, the VAT as a value is stored instead of the inc/ex vat price as it's more efficient for the calculations, we could store the VAT %age but it's less calculations needed to produce VAT invoices

[Saracen]

Huh? That's why I said group the items which are in the same tax bracket, then add their VAT, move on to the next group, rise, wash, and repeat, etc..

And what was my answer?

Because HMRC define what acceptable methods are, and that isn't one of them.

That's why you can't do it .... because HMRC say you can't. I also said they probably wouldn't much care if the amounts were trivial, but if you're VAT registered you follow VAT law or deviate at your risk.

It's an entirely pointless argument, aidan. People don't do it that way because they CAN'T, if they want to follow VAT law. There's no point in adding methods that you think might make more sense because you just can't legally use them. Period.

[chadders]

Yes sorry, rushed written, the VAT element stored seperately.

It also causes problems due to typically, as somebody else said, in a retailing environment working with VAT inc prices - because people think £199 looks better than £200 so they keep that price point and swallow the extra VAT. Bricks and mortar anyway, online don't need physical tickets and signage!

edit: as my example, it would have been £4.26 stored as VAT ex, then VAT stored as £0.74