Hi Everyone ,
I have recently set up a small online business and sell the products via Amazon. I am trying to understand how to calculate the prices and Vat on the products i sell. It is very confusing as amazon charge a "referral" commission of 15% on the total price the customers pays (including P&P !)
At present, lets say i want to sell a product at 10% margin i calculate the following :
a) Supplier Product Cost (exc VAT) = £5
b) Markup 10% = £5.50
c) VAT on "b" = £1.10
d) Sale Price @ 10% margin = £5.50 + £1.10 + £2.50 (p&p) = £9.10
Now in order to ensure i still sell with a 10% margin on Amazon, i need to ensure I account for their 15% commission . So what i am doing is :
e) £9.10 x 1.176 = £10.70
because when Amazon now deduct 15% from "e" = £10.70 -15% = £9.10
It seems correct but i just want to ensure i'm not missing anythign very obvious , the next question is what input and output VAT situation is. I'm being charge VAT by the supplier and by royal mail on p&p , i then include VAT in final price the customer pays ??
My confusion occurs because i know that other sellers are using my supplier and get the same price , but they are able to sell for far less on Amazon. Are they not charging VAT on their margin or pricing the items a lot differently to the way i'm doing it ?
Replies (8)
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any number of points eg
they may not have to register for VAT or may just ignore it
they may be treating P&P differently
they may work on a smaller GP
maybe they are getting a quantity discount from supplier
amazons vat needs to be considered its prob much less than 20%
One thing I would point out is that you need to be sure Amazon calculate their commission on the 'whole' sum you're receiving.
I remember a while ago eBay used to only charge commission on the sale price, therefore excluding P&P. All that did was make sellers list their items for £0.01 and the postage cost was whatever the real value of the item was. It's all changed now, however.
I would double check commission is coming out of the total price, rather than just sale price.
Also - as far as I'm aware (correct me if I'm wrong, everyone) regular postage is outside the scope of VAT. Unless, of course, you're sending everything 'signed for' or recorded delivery in which case VAT applies. But that doesn't make sense for an item selling for a tenner. If not, I'm not sure why you say you're being charged VAT by royal mail.
VAT on delivery
If Royal Mail is charging you VAT for delivery you should be adding VAT on your P+P costs on top of the £2.50 as it is probably deemed a VATable supply.
VAT on delivery
Normally VAT on delivery (however delivered) follows the VAT on the rest of the invoice (regardless of the VAT you paid on it or not) as it's all part of the cost of the sale and is not a separate supply.
VAT shouldn't be the issue because if they're not VAT registered they'd be paying £6 for the item and + 10% is £6.60 which is what your workings come to. They could however be "paying cash" and may not being charged VAT and be not VAT registered themselves for the to be able to achieve a lower price.
Your calculation seems correct based on what you are trying to achieve.
coolmanwithbeard has got the VAT treatment of postage correct.
carnmores, PayPal isnt available on amazon so isn't an issue for the OP.
I think a lot of people don't make money on their amazon sales, you don't really seem to be able to make a decent margin unless you import the items yourself. When you VAT registered you're effectively being charged 18% in fee's on your net sales, with that being the same for the postage element you're pretty much guaranteed to make a loss on that part of the sale which eats away at your margins further.
How much
Do you want to actually make on each sale?
If you are looking to make 50p on a sale (excluding any fixed costs) then you need to charge £11.71 - currently you're making 24p