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Post Info TOPIC: Income Tax
biggerontheinside


Newbie

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Hi everyone,

 

I have just been asked this question and don't know how to answer.  

 

Why do we use the net sales figure when calculating profit but the gross labour figure?  Their thinking is they are both taxes collected by HMRC so why is one included when the other is not.

 

Any help would be great, thank you!



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Artois


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biggerontheinside wrote:

Hi everyone,

 

I have just been asked this question and don't know how to answer.  

 

Why do we use the net sales figure when calculating profit but the gross labour figure?  Their thinking is they are both taxes collected by HMRC so why is one included when the other is not.

 

Any help would be great, thank you!

 Because otherwise the business would be paying tax on the difference between the labours net figure and the labours gross figure which would mean not only is recipient of the payment paying tax but also the business which would then mean double taxation on the same amount. 



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Doug

These are only my opinions of how I see things and therefore should not be taken as advice
VinceH


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Another point to go with Doug's:

The 'net sales figure' you refer to is net of VAT. The VAT is collected at the point of sale by the business on behalf of the vampires tax office. It is never money that belongs to the business to start with, so isn't included in the sales.

When it comes to labour costs, however, the amount the business is paying its employee's is the gross amount - and that's what's reported. The business is then deducting the tax from the employee (the tax is in effect paid by the employee) on behalf of the vampires tax office.

Your confusion therefore seems to be because these are two different taxes, paid for by two different sets of people (customers and employees) and collected by one - the business.



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Vince M Hudd - Soft Rock Software

(I only came here looking for fellow apiarists...)
Cheshire


Master Book-keeper

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A thank you to the boys wouldnt go amiss!



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 Joanne 

Winner of Bookkeeper of the Year 2015, 2016 & 2017 

Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.

You should check out answers with reference to the legal position
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