To those who pay VAT

[Kaz]

I'm not sure how to say this but....I have never done a stock take in all the years I've been running my bead business (ltd company).
At the outset I did some calculations based on a range of the kinds of beads that I make and came up with an average of 10% of the sales value of the beads being materials. Given that this is likely to be understated what with all the wastage and some of the silver glass costs, plus some jewellery sales where the raw materials costs are higher, I and my accountant feel that it is the best way of accounting for materials. Otherwise I'd have to weigh kilos and kilos of glass each year and count all my silver foil sheets and rummage through the cupboard of shame etc. So, stock value is worked out as value of raw materials introduced to the business at the outset of the business (when it became more than a hobby) plus new materials purchases in year minus materials usage in year (i.e. the assumption of @10% of sales) and that's the value of materials stock that goes into the balance sheet. If I have disposed of anything (e.g. I ditched a load of silverplated findings to a charity), I agree with the accountant what the write-off figure would be for that and it is netted off the stock value.
I don't know if that's helpful, but that's the way I do it. The value of my bead business is not so great that if the tax man disagreed with my methodology, it would entail a huge payback e.g. if they felt the materials element should be lowered to 5% but I would still argue that 10% is a reasonable figure and more than likely understates the true cost.
Kazx

[Hotglass28]

Hi Kaz, that's very helpful!  Thank you for taking the time to write that for me.

I got told to chill out by the boss. lol.  He said he isn't worried and we will stock take the glass and silver and findings what we bought from when the glass owls/beads started to sell. So I'm not worried now. I think you have prob guessed over the years I can worry too much     "We are not doing anything wrong and if they come for an inspection" he said "make them a nice cup of tea and show them your workshop and what you do"   He knows how to calm me down thank god!   

"cupboard of shame"  I like this.  Am relieved I don't have to do this (stock take all of it, that is)  I have lots of shameful drawers of stuff I've bought and forgotten about. hehe

Can the vat man tell you how much you should be spending on raw materials on each piece?   That's a bloody cheek isn't it?   I'd tell him where to go......          (actually prob wouldn't out of fear of them)

[Helen G]

My accountant pretty much does what Kaz says "So, stock value is worked out as value of raw materials introduced to the business at the outset of the business (when it became more than a hobby) plus new materials purchases in year minus materials usage in year" can't be doing with weighing glass and counting tiny silver beads! I did do a proper stock take the first year (when I was only selling a bit and didn't have to make it pay so had plenty of time on my hands!) and then a couple of years after that and it turned out to be pretty much the same anyway.

[jobead]

Not sure if it is me or the conversation that is getting confused here but I'm not getting the connection between stock taking and VAT accounting. Surely VAT is input v output then you pay the VAT man or he pays you? As previously mentioned you need to charge 20% on your selling price (which includes any time/labour you may add in) I can't see how this will be beneficial to you and your lampworking business in isolation?

Personally I would be wary of piggy backing someone else's business as it won't be you or your trade that is VAT registered. I would advise that as far as HMRC are concerned you are responsible for your tax and VAT returns regardless of the fact that an accountant is doing them for you.

[jobead]

"make them a nice cup of tea and show them your workshop and what you do" 

I dealt with a VAT man for a number of years who refused to accept a cup of tea as this would be a free and therefore a "gift", I am willing to accept that he was a bit hardcore !

[Hotglass28]

A cup of tea as a gift!  I'd say it was a must!

All sorted on the hissy fit I was having.  The accountant hasn't got an issue with how things are being done, so no problems.

Thank you for all for helping

[DementedMagpie]

That VAT man was a bit hardcore: unless you're the Ritz, a cup of tea is well within the realm of acceptable hospitality...

Yeah, what Kaz said about cost and stock takes. If you were, say, running a shop or a factory, you would have to do "proper" accounts, with stock takes and everything. But if you are only a tiny business, that would be faaaar too much of a faff. Kaz's approach to expenses (as a percentage of sales) sounds very reasonable - if anyone questions the numbers, show some workings on a back of an envelope*, it should be enough!

(A technique accountants do use themselves. Quite often, actually. Sometimes literally on a back of an envelope.)

[jobead]

Oh Kathy you are giving all our secrets away now !!

And yes he was a right miserable bugg$$