Shouldn’t the answer be:
Less (15,000) – VAT @ 20% (that cannot be passed customers) on the 75,000
it should be
sales (including VAT) 75000
less (4800) assuming cost of sales
less (12500) (the vat u collected by making a sale of 75K is12500 because you use the fraction of (1/6 * 75000 = 12500) NOT 20% of 75000.
Profit = 57700
BUT, the 70,000 was not inclusive of VAT in the first place as it was not a VAT registered business!!! The price increase has pushed it up to 75,000 (excl. VAT)!!! And therefore over the VAT reg threshold of 73,000 (excl. VAT).
75k exceeds the threshold
Of course it exceeds the threshold – but this 75,000 is taxable supplies excluding VAT!
When Vine was trading at 70,000 this would not have included VAT. Vine was not registered for VAT so it could not charge VAT.
So Vine increases the prices and this brings taxable supplies to 75,000 (excl. VAT). Now since this would exceed the 73,000 threshold (excl. VAT) Vine would have to become VAT registered, and subsequently will have to charge VAT. This VAT would be 15,000 – but the customers will not accept this type of increase because they can’t claim VAT back! Therefore Vine would have to take it as a cost!!!
You must be logged in to reply to this topic.