However when I’m doing a supply and fit job where by I supply goods and labour, I end up paying a personal tax on the full amount of the invoice (including goods I’ve purchased to then resell, or do I need to split it so I only pay personal tax on my labour aspect and the goods aspect is treated differently (I.e I don’t pay personal tax on goods I purchased to resell?), so when I look at my costs involved I pay vat on the full amount but only my labour costs incur personal tax?
I hope this makes sense, I’m going to see a private advisor in the next few weeks as currently my wife deals with my company finances (she is head of the accounts department for a large manufacturing company) but due to being a sole trader I’m in a completely different scenario to how she normally works, she’s also pretty ill and has had a baby recently so I’m trying to take the pressure off of her!
Ok sales invoice labour 1000 and materials say 300 (net of vat price passed on to customer with nil markup - ie materials cost you 360 cash price including vat)
so sales inv 1300+vat 260 = 1560 gross
you have spent 360
If you are on say flat rate vat of 14.5% - vat payable to hmrc will be £1,560 * 14.5% = £226.20 - i am presuming there is no "limited cost trader restrictions here"
so to calculate profit subject to personal tax everything is calculated net of output tax you paid across to vatman and net of any reclaimable input vat (nil here) -
so your sales will be +1560-226.20 = 1333.80
expenses will be +360.00 (gross value as no input vat claimed)
profit subject to tax = 1333.80 - 360 = £973.80
Note this figure is exactly the same as gross income 1560 less gross expenses - 360 - less 226.20 vat to be paid = 973.70. in some respects you could do your calcs that way but nomally when in business the figures are always shown net of vat
Note i am hoping your business model is not along the lines of
sales invoice 300 labour and 1000 materials
if that was the case your sales net of vat would be 1333.80 and your expenses paid out would be 1200 leaving only 133.80 profit (I.e practicably speaking more than half your labour has been lost due to the fact that input vat cant be claimed back)
I am guessing this is all as clear as mud