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Original poster

Any accountants about - turnover question

28 replies

toppkatz · 19/01/2022 18:01

Hoping someone can help with this. I'm freelance and a distant friend of mine has approached me to help with her books as she's got in rather a mess. It's an MLM (yes I know!) and I need to get a few things straight in my mind before I go and have a look. What I really need to know is whether her turnover is the gross sales, or whether she is acting as an agent so to speak, and turnover is the commission earned on those sales. If anyone knows which, I'd be most grateful.

Thanks in advance Smile

OP posts:
Original poster
toppkatz · 19/01/2022 19:55

Anyone?

OP posts:
Decoratedchicken · 19/01/2022 19:56

Whatever income she makes is the turnover

topcat2014 · 19/01/2022 19:59

It really depends on the contracts. Most MLM aren't really businesses and lose money.

Who does the end user actually pay?

What is the reasoning for the question? Trying to do a tax return?

EmmaStone · 19/01/2022 19:59

I don't definitively know the answer to this, but presumably she has some kind of invoicing that includes her share as well as the products, and then the products are her COS? Which would indicate her gross sales would be her turnover.

ceaddas · 19/01/2022 20:01

As a rule of thumb, what she gets paid into her bank account is her turnover. You'd need to look at the contract to be sure, but if she collects and then remits the gross sale money without deduction, and then is paid commission, then likely the commission is her turnover.

CustardGoodJamGoodMeatGood · 19/01/2022 20:26

Turnover would be the total income (before any COS etc), her net profit would then just be commission really after she's paid for any of the goods she sells, COS, business expenditure etc.

Pushmepullyou · 19/01/2022 20:28

Yy turnover is total sales, products are cost of sales

topcat2014 · 19/01/2022 20:33

@pushmepullyou as a general rule you are correct, but agency arrangements can distort this idea

Bakingdiva · 19/01/2022 21:09

It will depend on what the contract says.

It could be that her t/o is what the customer pays and then her cost of sales is the amount paid over to the MLM.

Alternatively, it could be that her t/o is the 'cut' she gets from the sales.

WitchDancer · 19/01/2022 21:12

Her turnover is the total amount taken. Then the commission is shown as a cost of sales.

Original poster
toppkatz · 19/01/2022 21:45

@WitchDancer

Her turnover is the total amount taken. Then the commission is shown as a cost of sales.
No it isn't, cost of sales is what she pays to her supplier for the goods.

What I'm getting at is whether her turnover is what she collects from her customers and passes on to the supplier, or whether her turnover is the commission she earns from doing so. The issue is clouded, of course, with stuff she buys herself for her own personal use, and what she buys for the business as samples and testers for customers to try.

@topcat2014 She hasn't a clue what she's doing and has asked for my help in sorting her paperwork out because she knows I work in accounts.

@ceaddas that was my train of thought really. I'm going to have to read the small print, aren't I?

OP posts:
Justkeeppedaling · 19/01/2022 22:00

I think turnover = sales.

The difference between sales and her purchase cost = gross profit.

Net profit = gross profit minus any overheads like cost of delivery, cost of running the office cost of insurance, whatever.

Original poster
toppkatz · 19/01/2022 22:24

Thanks @Justkeeppedaling I know all that already, I'm in charge of an entire accounts department at work. What I don't have is an in-depth knowledge of the regulations relating specifically to MLMs and the self-employed, and whether or not HMRC view their income as the gross sales or the commission on those sales.
Because if they are simply working as an agent and collecting the money on behalf of the MLM and sending it off, then the gross sales isn't their income at all, they are just acting as an intermediary. Their income would then be the commission they are paid.

I was wanting to know if there were any accountants who were familiar with the law on this matter, and could confirm either way.

OP posts:
topcat2014 · 19/01/2022 22:28

@toppkatz I don't think we can answer further without the contact, so that's tricky.

Ps are we related :)

delilahbucket · 19/01/2022 22:52

Turnover is the money she receives. So if her customers pay her, that's her turnover, if they order direct from the MLM via a link she gives them and they deal with her customers payments, then her turnover is just the commission. Does she physically have to buy the products and then sell them? Or is she just marketing them for the company?

Lockheart · 19/01/2022 22:56

This is a question that we can't answer without the contract.

I don't work with MLM agents but I work with dealers in the art world. Some of them work as agents, whereby they facilitate the anonymous sale of a piece so everything goes through them and the buyer and seller are blind to each other. As an example:

Say they pay the vendor £18m for a painting and the buyer pays them £20m for it.

Their turnover is their commission, being the £2m difference (not what they actually charge, I'm being overly simplistic for illustrative purposes Grin )

They do NOT have turnover of £20m and COS of £18m with profit of £2m. They never own the painting and they are facilitators only. Their trade is the making of deals, not the sale of artwork. Their turnover is their commission and their costs are e.g. travel to see clients.

You'd need to study her contract / sales agreements to see if she's the vendor or an agent.

StripeySnail · 19/01/2022 23:05

You need the contract. It won't be clear cut, I wouldn't have thought, but the criteria as to whether principal or agent is set out in FRS102. You could then apply that guidance to her situation /contract.

Original poster
toppkatz · 19/01/2022 23:16

@topcat2014 Probably Grin

Does she physically have to buy the products and then sell them? I think it is more that her place orders and give her the money. She then orders the stuff her customers want, and uses their money to pay for it (I assume).

@StripeySnail aha - that might be just what I'm after, thanks.

OP posts:
StripeySnail · 19/01/2022 23:42

Hope it helps OP

CassiopeaAndromeda · 19/01/2022 23:52

FRS 102? I'd have thought BIM was more likely. Considering it's an MLM I assume she's self employed, and has she really made many sales, she could be below the £1,000 income threshold making the whole thing irrelevant. Regardless, seems like quite a mess to be getting involved in for a distant friend, especially when it is not within your area of expertise...

burnoutbabe · 20/01/2022 00:02

Either way she'd gave the same profit but I assume she had the stock risk so is not an agent.

Turnover would be important for vat registration I suppose?

Original poster
toppkatz · 20/01/2022 00:12

I've done self-employed tax returns before, but normal ones, not for MLM type people.

She's an old friend and we go way back. The reason I'm doing it is because I reckon at the moment, she thinks her income is the gross sales and she's doing really well, however I suspect her income is only the commission and by the time I've explained to her what expenses she can deduct from that, she'll be making a loss, see the light and give the whole stupid thing up. Grin

I also have a feeling that if I don't step in she will file her tax return incorrectly by stating her gross sales as her income, and then not properly deduct her cost of sales and expenses. She has no idea. And I reckon she'll be under the £1k threshold too.

I've had a look at resources suggested by a pp above, and I reckon she's an agent not a principal, so that's what I will suggest. Not recommend, obviously, as I don't have insurance cover for that sort of thing.

Thanks all.

OP posts:
burnoutbabe · 20/01/2022 00:22

Surely she would be making the sane loss or profit whether you treat it as gross sales less cost of goods. Or commission?

Both would have expenses then to take off.

Original poster
toppkatz · 20/01/2022 14:09

@burnoutbabe No stock risk, she only orders what the customers have paid her for. So from what I've now read, it appears that she would be an agent rather than a principal.

The bottom line would be the same yes, but the turnover would be vastly different. One would mean she'd have to do tax returns, the other (if calculated on commission only) would be likely to be under the £1,000 threshold so no need to register as self employed.

I want to save her that hassle.

OP posts:
topcat2014 · 20/01/2022 14:26

It is hard persuading friends out of the MLM cult trap..

Well done for trying!