VAT and product cost for hand made products

[cameliha]

Hi all.

I am currently trying to find out how much I should sell my hand made hair accessories.
As many of you I guess, I find it difficult to find the right cost for my products, without charging to much but still be able to make a little of profit, at least.

My question here is do you include the VAT cost for each product you sell or for the order total?
What do you include in your product price?
Knowing that if you sell online you have the fees from Paypal, plus the shipping cost.... It get complicated

Anyway, if you have any advise please let me know. In exchange, as a web designer/developer, i can give you advises on ecommerce, marketing, social network...
I apoligise in advance if this question has already been asked.

Many many thanks.

[Caroleecrafts]

The first question is are you vat registered? If your turnover in the last 12 months is less than £79K than you do not have to register and tbh unless you have to a lot of extra work.

I am not vat registered but some of my suppliers are, I take the total including the vat element and include that in my costings ie if I buy some fabric that is £20 plus vat of £4 I use the total of £24 to work out the cost of a product. With regards to paypal and credit card fees etc this is again worked out in the cost along with overheads such as heating, electricity etc.

Take a look at Joanne Dewberry's book Crafting a small business and her website as UK based the info she writes about is relevant and helps you with all the legal bit and costing correctly. You also have to factor in wholesale prices which are about 50% of the retail price therefore you have to ensure that you price to allow for both retail and wholesale.

[Incognito 1]

I agree with the above except that VAT isn't a lot of extra work, being a limited company is a bit more involved. We enter all our transactions into our software and our VAT returns are calculated automatically and then sent on line. I wouldn't advise registering for VAT when you don't need to if selling to the domestic market but it does have advantages and disadvantages. You will have to charge the extra 20% VAT on everything you sell but that will be balanced off against 'reclaiming' the VAT off your purchases. Some businesses can pay a flat rate scheme ie lower amount, not sure how that works but my painter and decorator does this.

[Caroleecrafts]

I have done vat returns for years when working in the accounts field and yes they are easy when you know what you are doing but do feel for a small craft starter is added pressure when not needed

[AnnieAnna]

Yes to everything the above posts are saying. If you are small keep things simple like Carolee says.
And like Craftychez says there is an odd thing where you can volunteer to be VAT registered when you don't have to be. My son the illustrator does it. It's a simplified version and works out to his advantage when wheeling and dealing with publishing houses. It was his accountant who did the maths for him.
My turn over has never reached £79,000 - oh wouldn't it be loverly if it did - so in my money out column I just put what I paid at the till for materials and use that figure to work out my selling price.

To address your other question - PayPal fees etc - you'll find there's a whole load of costs to selling you don't think of to begin with. If you make a website, there's costs, if you go to fair there's fees for a space, if you travel there's petrol or tickets to pay for and let's not mention doing weekend events and staying in hotels! I don't think you can work out what these will be when you are starting out. I think you have to make an educated guess....or pick a formula everyone else is using. Why reinvent the wheel? So if you go with Carolee's suggestion of work out what each thing has cost to make, then doubling it you'll be on the right track. After a year you can scrutenise your figures and tweak your prices.
Other tactics: the Annie me looked at what others were selling at and copied them.
When I needed things that cost 50p I worked backward to see how I could knock them up for 25p each.
When I was making things for £100 plus I lost confidence and went by what I would pay for it and got told off by my friends. They made me almost double my prices and they were right. The customers asking for high end things have good jobs and no time so are willing to pay.
The Anna me buys craft stuff from Chile. There I take the price I pay the crafter and double it to get what it costs me to get it (sending my DIL to Chile see her mum or paying postage mixed with currency exchanges yoyoing), then I double it again in order to get any profit. Times have been very hard though, with me paying the same amount for fair space but selling less than I was, so I think maybe my formula needs altering to 5 times the price I buy the craft item at.

[Incognito 1]

I have done vat returns for years when working in the accounts field and yes they are easy when you know what you are doing but do feel for a small craft starter is added pressure when not needed

Carolee, the 'know how' is taken out of it if you use basic software designed for small businesses. It actually removes the workload and hassle of book keeping. Early on in our business it go too much for us to keep track of with so many transactions. We decided to use software (Quickbooks) to make life simple and enable us to spend time on the business rather than messing about 'doing the books'. All purchases and sales /invoices are entered so there isn't anything for us to calculate. We can also run reports to find out outstanding invoices, profits, sales, costs etc without having to work them out ourselves. This would be very useful for some crafters as it seems to me (from reading some posts) that some people forget about some of their overheads.

Just and added bit more info....
Our software can also cope with dual currency and VAT calculations, useful if you buy and sell abroad. I'm proposing to do this for my (non craft related) business and would hate to do these calculations manually. As long as we enter the HMRC approved exchange rate at the time of the transaction we don't have to try and work out VAT for the foreign currency transactions, the software can cope. The thought of having to do that myself did get me worried!

[Emmacc]

I use sage one for my accounts and must admit it makes my life so much easier when it comes to the dreaded vat return

[Incognito 1]

The large corporations I have worked for have used Sage but my husband said he found Quickbooks more user friendly than Sage for running a micro or small business.

[the card shark]

The small business that I used to work for used Sage Accounting and I have to say it's one of the most confusing systems I've ever come across! I didn't do the VAT return when I worked there, but instead their accountant did it.

[Incognito 1]

The small business that I used to work for used Sage Accounting and I have to say it's one of the most confusing systems I've ever come across! I didn't do the VAT return when I worked there, but instead their accountant did it.

Doesn't Sage calculate the VAT automatically then?