Value-added tax is a UK-specific sales tax. Big companies in the UK are often VAT registered and can get the VAT due on top of royalties too. This blog is for accounts-literate financial professionals, and the point is to explain to an accounts team how the structure of an on demand partner affects VAT return accounting: If you’re not VAT registered, or don’t know what that is, this blog is probably not for you.
Pic Samson Duborg-Rankin c/o Unsplash
At Teemill, the customer transaction is between their bank and ours, and we pay you royalties on each sale. Royalties are paid exclusive of VAT automatically, but if you’re VAT registered you can get the VAT due on top of your royalties too.
VAT Registered Example
For example, if a white t-shirt that retails for £20 and costs us £10 inc VAT to make, there’s £10 profit including VAT to split 50:50: £5 for us and £5 for you.
As royalties are paid exclusive of VAT, our system will automatically pay you the £5 ex.VAT above: Therefore the standard payment will be £4.17. If you’re VAT registered you can claim back the VAT due on your royalties (e.g. the £0.83 balance from your earnings, from the VAT man.)
All royalty payments are made automatically at the end of the month. If you’re VAT registered, you can then claim back your VAT by advising your accounts team to do the following:
- • Send a VAT invoice including your total royalties paid for the month PLUS VAT due on those royalties
- • A statement that shows this invoice as well as the payment of ex.VAT royalties made by our system at the end of the month to firstname.lastname@example.org.
This will show a balance of the VAT due on royalties you have earned.
All royalty payments are made each month, automatically by our system. We also make VAT balance payments (each Friday) for the VAT amount due, bringing your VAT balance to zero.
Hey presto, VAT-registered companies accounting with Teemill, made simple.