There are new rules that mandate point of sale (POS) VAT charges on goods and services. This rule implies that drop-shippers are to add VAT charges to the price of their goods and services. This article will help you understand how to add VAT accordingly, and make it easy through automation.
However, enlisting your business for VAT registration provides some added advantages for your business. As a VAT registered seller, you are allowed to charge VAT on your sales, and you get to enjoy the benefit of reclaiming VAT returns on goods purchased for your business, and it also enhances your brand's reputation and marketing image by making your business appear more credible, thereby attracting more potential customers.
VAT Rates That You Should Know
Once you are a VAT registered business, you need to understand the conditions attached to VAT on goods and the different types of VAT charges. Almost all goods and services are taxable. However, there are some exceptions, which include tax-exempted goods and those outside the UK tax system. There are three different VAT rates chargeable on goods. Knowledge of the different VAT rates can help you know the right VAT on various goods and services. They include:
Standard rate
The standard rate applies to almost all goods and services. The VAT charge is 20% of the total cost of the goods or services. Unless a good fall into the reduced or zero rates or tax-exempt category, the standard tax rate is chargeable on all goods.
Reduced rate
this rate applies to a specific type of item. It applies to children's goods as well as home energy products. A reduced VAT rate also applies to goods and services purchased for use by the elderly to aid their mobility. The reduced VAT rate is 5% of the total cost.
Zero rates
Zero-rated goods are goods that incur 0% VAT charges. Some of these goods include books, children's outfits and footwear, and goods imported by a VAT registered EU business from Northern Ireland.
VAT rates are subject to change by the government, so be sure to stay updated on the VAT rates and ensure you enforce the new VAT rates once a change occurs on the old rates.
How to Add VAT on Amazon Sales?
As a seller, if you're finding it hard to add VAT to prices or to estimate how much VAT charges a particular product on Amazon platforms incurs, then you should check this out.
This is how to add VAT to a price of good you need to dropship: - you add (1+ VAT rate) to the actual cost of the good.
Case 1: Using the Standard VAT rate of 20%, convert to decimal gives 0.2.
Price of good + (1+0.2)
- For example, a product that costs $50 the VAT on the product is calculated as
$50 + 1.2 = $60.20 VAT inclusive.
- For reduced rate, 5%, on a $50 product: $50 + (1+0.05)
$50 + (1.05)
$60.05 VAT inclusive
Case 2: To calculate VAT charge on an already VAT inclusive products, divide the VAT inclusive amount by (1+VAT rate)
- For standard rate: $50 VAT inclusive/ (1 + 0.2)
$50/1.2
$41.6666
Therefore, $41.6667 is the actual price of the product, while $8.3333 is the VAT charged on the product.
There are also VAT calculators that make adding VAT to prices of goods easy. Using the add VAT calculators saves you the stress of manually calculating the values. Amazon offers VAT calculation services on their platform that make it easy to trade and add VAT to a price of good for a small service price. The advantage of Amazon VAT calculation services makes it easier to record and file your business' VAT returns.
5 Apps to Make VAT Easy
There are various available features and tools on online platforms like Amazon that make it easy to monitor and optimize your business' growth. There are also app features that take care of your VAT. These apps include:
- A2X accounting
This app helps to provide accurate accounts of your transactions on online platforms like Amazon and Shopify. A2X records your transactions report and stores them in your accounting account on the A2X platform. This app makes it easy for you to access them when you need to file your tax returns. A2X is easy to install and set up your bookkeeping and VAT accounting for your business. A2X securely accesses all your business transaction records and transfers them to your accounting software, then sums up the total and subtracts your UK VAT returns and sends the rest to your bank.
- HelloTax
HelloTax is another app that makes it easy for online drop shippers to compute, receive and pay their VAT returns. It provides registration and returns for VAT across several platforms. You can also access HelloTax via the free plan access.
- Quaderno
With Quaderno, BAT is made easy. Quaderno offers a variety of features. A notable feature the app has is the ability to monitor your sales and distance selling limits. This keeps you informed on when to start charging for goods sold in a particular country.
- Avalara
This app helps you to monitor your sales in Amazon marketplaces and your VAT. They ensure that your taxes are done right. Avalara helps you to calculate and estimate when your business is to enlist for VAT registration and takes over the filing of VAT returns to appropriate quarters.
Conclusion
An easy online business to engage in is dropshipping. Dropshipping requires little or no capital to start-up, and you don't need to own the products. All you need to do is create a platform online showcasing various goods available by your supplier. When a customer orders a particular product, you contact the supplier, and it gets shipped to the customer by the supplier. Being a commercial activity that involves the purchase of goods and services, dropshipping incurs VAT charges.
In conclusion, VAT registration is an important factor to consider as a dropshipping business owner. This article has highlighted things for you to know to help you add the right VAT charges to your goods and keep records of your business transactions for effective VAT returns filing. So, hop on and take advantage of VAT registration benefits and use this article as a guide to choosing the right VAT app for your business.
For more helpful VAT related articles, please stay tuned with SaleYee Blog.
