Hi there, I've just registered a Ltd Co. however I did not VAT register it. I am going to be selling mail-order electrical products through a website - all based in the UK. I will be importing products from the Far East and also ordering through UK wholesalers.

However, I do not fully understand VAT:

If I am not VAT registered, am I still paying VAT when buying from wholesalers, but unable to claim it back?

As I am not VAT registered, does this mean I can charge my customers 17.5% less than rival companies?

If I buy ?00 worth of goods from a wholesaler and sell it on for ?50 to the customer, how does that transaction break down with a Ltd Co. vs. a VAT registered Ltd Co?

Does not being VAT registered make it harder for me to import products?

In my situation, would you register for VAT before trading or would you wait until the business reaches the threshold?

Thanks in advance for your help.
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Hiya Andy

Welcome to the forum ..... Can I presume with these question's that you do NOT have an Accountant to advise you on such matters ..... if not, then I suggest you make that either top or very close to the top of your "to do list".

Have a look at the VAT Section (http://www.hmrc.gov.uk/vat/index.htm) on the HMRC website.

Good Luck :)
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Yes, you will still pay VAT from suppliers and you won't be able to claim it back.

You can charge customers whatever price you choose but remember that as you cannot claim VAT back this will affect your margins.

If you buy goods for ?00 ex VAt, then your total cost will be ?17.50 (inc VAT). If you sell this to a customer at ?50 then your profit is ?2.50

Your decision to register for VAT depends on a number of things, but if you are buying a lot, then your margins will be smaller.

if you were registered for VAT, how would this affect the price you are aiming to sell at? How would you compare to the competition?
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If you buy goods for ?00 ex VAt, then your total cost will be ?17.50 (inc VAT). If you sell this to a customer at ?50 then your profit is ?2.50

This is something that I too don't understand- hence hiring an accountant who does :)
But I actually should learn this, so I don't pay the man so bleeding much every month next year!
If a supplier sells you goods for ?00 cash... then where is the VAT, if they do not mention VAT? Should they?
Then if you sell the goods to a non VAT registered person for ?50... then where's the VAT? Will HMRC ask for the VAT when the books are done?! *confused*

On second thought, God bless my accountant :)

Sorry to hijack the thread hehe
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Warning

before you start a few questions

Are the electrical goods meeting all UK and EU safety requirements

Do you fully understand the Distant selling regulations

How are you going to do your quality control on goods, it's to late when they arrive at the UK docks

Are you prepared for rapidly rising transport costs

Do you know the shipping costs and import duties plus any trade limits to importation

As yo have not thought through the basics of how vat works, i wonder if you have thought about any other items
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If I am not VAT registered, am I still paying VAT when buying from wholesalers, but unable to claim it back?

Yes if the supplier is vat registered which wholesalers invariably are you will receive a vat invoice showing the vat charged. If you are not vat registered then the vat is treated in your accounts as a cost and is not reclaimable.

If you register for vat at a later date and still have stock left you would be able to reclaim the vat on that stock for up to 3 years. If the stock was sold before registration then you could not reclaim the vat.

As I am not VAT registered, does this mean I can charge my customers 17.5% less than rival companies?

Yes since you do not have to pay the vat output then effectively your price is 17.5% less than competitors that charge vat. But only to non vat customers. Because if the customer is also vat registered tghey can claim the vat back so has no financial effect.

If I buy ?00 worth of goods from a wholesaler and sell it on for ?50 to the customer, how does that transaction break down with a Ltd Co. vs. a VAT registered Ltd Co?

Non vat regsitered
Cost ?17.50 Sale ?50, profit ?2.50
Vat registered
Cost ?00 + vat Sale ?50 + vat, profit ?0
Amount paid out 117.50 amount received ?76.25
?0 profit and ?.75 paid to HMRC

Does not being VAT registered make it harder for me to import products?

Probably no difference at all

In my situation, would you register for VAT before trading or would you wait until the business reaches the threshold?



If your clients are vat registered then register
If your clients are members of the public then wait until sales reach the threshold of ?7,000 p.a.
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If a supplier sells you goods for ?00 cash... then where is the VAT, if they do not mention VAT? Should they?
Then if you sell the goods to a non VAT registered person for ?50... then where's the VAT? Will HMRC ask for the VAT when the books are done?! *confused*

On second thought, God bless my accountant :)

Sorry to hijack the thread hehe

Cash transactions are usually deemed to be VAT inclusive (ie, in retail when you buy crisps for 40p, an element of that is VAT which the shop keeper will pay over to HMRC but the customer will not get a receipt and so cannot reclaim the VAT on that packet of crisps).

If you want a VAT receipt, then you should ask for one and the supplier will either comply (legal requirement) or state they are not VAT registered.

The ability to charge VAT is the responsibility of the taxable person, that is, the eprson registered for VAT. So if a wholesaler is VAT registered and they sell a widget to a Retailer, they HAVE to charge VAT to retailer. If retailer is not VAT registered he can choose to sell that item onto custoemrs without VAT (but he would have paid VAT on the goods from wholesaler so his retail price will now be cost of goods + VAT + whatever profit margin).

If retailer registers for VAT, he too becomes a taxable person and so must charge VAT on his sales of widgets (but he can now recalim the VAT he was charged by wholesaler thus cost of goods + VAT - VAT + whatever profit margin).

Easiest thing to note about VAT. It is a tax on the end consumer or unregistered person. So if we assume the businesses inbetween are all VAT registered then VAT will just be an accounting in/out entry with joe soap having to ultimatly pay the VAT. If one of the businesses in the chain is not VAT registered, then the VAT 'sticks' with them - hence why most traders register for VAT and pass the problem onto the consumer.
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