Not quite DIY: Not having used mark up and margin for years I am now confused as to what my profit is in % terms. example: cost price £1.89 sell price £2.89 Profit is £1.00
But should I log this as 53% profit based on cost price OR 34% profit based on selling price.
At the moment I am thinking it should be 53% based on cost.
Let's make it easier; Cost £2 Selling £3 Profit £1
That's a 50% mark up on cost giving you a 33% profit on sales.
OK if you're selling 10,000, rubbish if you are selling 5. Turnover is vanity, profit is sanity.
Ask your accountant, but in my head the margin is 53% but the gross profit is 34%.
Depends which profit you are talking about:
Surely that's ONLY the mark-up on the item. 20% VAT, operating expenses, postage sending the item, credit card costs, wages etc. may make the £3 selling price a loss and not a profit.
OK gross profit.
Or as we used to say mark up of 50% and margin of 33%
Gross margin as opposed to net margin
My objective with this (more as a hobby than a business) is to generate enough profit to pay for 4 air fares a year for holidays. So far I have managed to do this for the last 3 years.The items I `make` cost between
5p and 15p to produce, not high volume but it gives me something to do in retirement.
OK. You have to work out; How much you need to make to pay for the holiday. Add overhead e.g. labour, postage, packaging, advertising, transport, accountants fees etc. remember that you can offset part use of house as business premises, pay your wife if she doesn't use her tax allowance etc. Divide that by the number you could reasonably make/sell.
So, assume you need £1000 for the holiday Maybe you consider your labour as the profit. Add total overhead say £200. That's £1200.
If you can make/sell 1000 you need to make £1.20 on each. If you can only make/sell 50 you need to make £24 on each.
With a small business it's not about percentages, it's about money.
I could easily make a 500% profit selling screws, wall plugs etc at a boot fair. If I only take £40 less the cost of pitch I've made bugger all money.
In that case, it doesn't really matter. I've always paid for air fares in pounds - not in percentages!
Either way it's profit before tax. 20%? 40%? 45%?
(Hint: saying that "My objective ...is to generate enough profit to pay for 4 air fares a year for holidays" gives HMRC a knock-down argument that it ain't just a hobby. Advertising too would probably put you out for the count - if they could be bothered.)
Nail, hit, head!
It doesn't matter if it is a hobby, if you make a systematic profit it's still taxable (subject to the normal allowances).
The point about HMRC not being interested in taxing money that people make from their hobby is that usually the hobbyist has large amounts of sunk expenses that can theoretical be claimed against that profit.
Trawling through all of that to find that 99% of hobbyist make a loss, to catch the other 1%, just isn't worthwhile.
tim
HMRC can dig all they want as although I am retired my pensions have not yet kicked in so I am well below any threshold, I dont receive any benefits but my wife still works (due to raised retirement age) so that is our main income. And she is a fully qualified financial advisor which does help.
Yep, that makes profit before tax same as profit after tax. As well as guaranteeing HMRC won't dig as there's no money in it for them.
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