VAT on a commission based company.

[intrepidphil]

Hi, I need some advice from anyone who knows about VAT.
We operate a hotel booking agency. Our commission on room sales is usually around 10% of the sale price.

As we only earn 10% it is impossible for us to pay 7% VAT on the gross. The remaining 3% wouldn't cover bank credit card charges (a further 2%) + our running costs.

The hotels and wholesalers that we are the agent for, issue us with invoices and receipts for the full cost of the rooms at our nett rate. This makes it impossible for us to book only our commission.

I have heard from local hotel owners that they pay only VAT on their Operating Profit, if this were the case also for our business then we would be ok, but there is a recent case where our local revenue department is presently crucifying another 10% agent to the point that he will have worked only to pay tax, and will close with massive debts.

If anyone has any advice as to a solution, I will happily marry them.

Thanks

[ktownsoi12]

Any update on this?

[blackcab]

Your maths needs a bit of revision. You make 10% commission, and yes you do need to pay VAT on this. But... you do not count the 10% you earn and pay seven tenths (7/10) of it as VAT. Instead you pay 7% of your income minus your allowable deductions.

Here is a fictional example;

You sell a room night for 1000 baht for the hotel. The hotel gets 900 baht, and you get a commission of 100 baht.

The hotel books a 900 baht sale and pays VAT of 58.88 baht, which is 7% VAT figure of 900 baht. The hotel keeps 841.12 baht.

Now your comission. You received 100 baht, so you pay 6.54 baht as VAT. You keep 93.46 baht.

You can work this out another way. The VAT payable on 1,000 baht at 7% is 65.42 baht. If you add up the VAT the hotel pays (58.88 baht) and the VAT you pay (6.54 baht) you can see the correct amount of VAT has been paid (65.42 baht).

Your business would do this for each sale, then calculate the total VAT payable. From this figure you deduct the VAT your business has paid during the month. You pay the revenue department the difference.