View Full Version : Firebox commission paid before VAT?
I was just looking at a commission from Firebox (my own purchase to test a new site of mine) and realised the commission I got was paid on the value of the order (1 item) before VAT. i.e. it was slightly lower than expected because it was not a percentage of the full retail price. Is this normal? How many other merchants do this? I always assumed commission was based on order value excluding postage but including VAT.
To answer my own question (which I should've done before posting!):
From Firebox account information:
Commission is paid as a percentage of all valid sales, and is calculated excluding postage, VAT and promotional gift voucher amounts. Firebox has a preorder system for customers and for these orders commissions will be validated when goods ship.
Is this an exception or the rule? Do the majority of merchants pay commission including VAT?
Confuscius
04-04-08, 13:49
Commission structures vary by merchant - if I was a merchant then I would adopt the Firebox approach!
As a VAT registered business then I charge VAT on any commissions earned so the Firebox approach is equitable with VAT registered affiliates.
A merchant sells an item for £23.50 and pays 10% commission on the NET amount - my commission is £2.00 and I invoice Digiwin for £2.35 inc VAT. A merchant sells an item for £23.50 and pays 10% commission on the GROSS amount - my commission is £2.35 and I invoice Digiwin for £2.76 inc VAT.
So a 10% net commission is the equivalent of an 8.51% gross commission.
Paul
Hmmm. I'm not VAT registered yet as I've only been dabbling in affiliate marketing up until now but I'm about to launch a new website and anticipate significantly greater turnover. I'm sure VAT will be an issue soon but worryingly I have no idea what your example means! :o
I am registered as a sole trader at the moment so finances have been quite simple with tax returns and such. I can see I'm going to have to do some reading about this.
If you wouldn't mind explaining further, what do you mean when you say you invoice Digiwin? With a NET commission such as Firebox you receive £2.00 and invoice for £2.35 does that mean you pay the £0.35 to the IR as VAT out of the £2.00 you actually receive or is that £0.35 cancelled out somewhere in the books? A relevant example like this will really help me to understand how VAT will affect my business.
Steve, it's possible you mixing two things up here. The VAT/commission question only effects the perceived commission rate and you will not have to invoice seperate merchants for VAT. So in Firebox's example, just see the commission as actually being 8.51% in reality, once all the VAT jiggery pokery is done. You don't need to do anything.
The big picture of VAT is simple really:
Just think of yourself as an unpaid tax collector for the VAT man.
If you pay VAT to someone - they pay it to the VAT man.
If someone pays you VAT, you have to pass that amount (no more - no less) to the VAT man.
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VAT returns due in 3 monthly.
e.g.
VAT paid out by you in 3 month period: £800
VAT paid to you in 3 month period: £1000
Thus - You owe £200 when you do your return.
It is simple really, at the end of the day VAT costs you nothing, in fact it saves you money if you pay for advertising etc as you will normally pay VAT (which you can claim back once registered) - no need to fret about it.
When you register your VAT number with AW, all your future payments will have the VAT due to you automatically added on top of your commissions (just let it sit in your account - don't spend it!!)
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I think that's about right but am happy to be corrected. There are finer points but that's basically the crux of it.
Note: I know there used to be bug in the AW system that said you'd been paid VAT on all previous payments as soon as you register your VAT number with them - that isn't the case (or wasn't), as you'll only ever be paid VAT once you're registered, and not before. You simply then invoice AW for all previous VAT amounts due. It will make sense when/if you register for VAT! Honest!
Confuscius
04-04-08, 22:14
I cannot really add a lot more to what Bud has said other than to say that, from a financial perspective, then you should not NORMALLY register for VAT until you exceed the thresholds that require you to register.
PS I do not invoice Digiwin as they have a self billing system, I was just giving an example as IF I did!
Paul
Thanks guys. With the examples you've both given and the reading I did yesterday on the Business Link website and others VAT is starting to make sense now. I think my main complication is that my new site is a cashback site where we payout a large portion of the commission. This is already coded and ready to go but in trying to prepare for the future I wanted to know what would be required when VAT becomes an issue.
It will make sense when/if you register for VAT! Honest!
Let's hope so! :)