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Hello, My business is doing well at the moment and is growing quiet well. My profit margin is high which is great, but when/if i get to the time i have to register for VAT that comes back at me big... If i buy my product at ? and sell it for ?3 i will make ?0. However when i am VAT registered i will claim back ?.53 and pay ?.28 so i will loose ?.75 on each sale (stop me if i am wrong anywhere here). So if i sell 100 products per week thats ?75/week loss. (these numbers are just for example) My worry is i predict my turnover to be close to the VAT threshold, and if my turnover is slightly over (e.g. 68k - 75k) i will end up loosing thousands, aswell as having to do more work (VAT every 3 months) I do not really want to stop trading, but i do not want to go over the VAT threshold until i am satisfied i would be well over it so i dont loose money. Any advice? Also, i sell online and post my product. If i sell for ?0 and charge ? postage, do i pay VAT on ?3 or on ?0? can i claim the VAT back on postage? Thanks in advance :) ============= Hi, just a quick response as i'm about to go to bed and am half asleep, but if you are retailing you could maybe join the flat rate scheme, whereby you just pay 5-6% of your turnover, but you can't claim any thing back but it saves a lot of paperwork, but in my experience avoid it as long as you can, i went over 2 years ago for 1 month, so had to register, and of course as soon as i did, 2 new competitors opened nearby, business plummeted from 64K to 46K and i've paid for 2 years for nothing, i'm just in the process of deregistering now, but its a pain. ============= When you register for VAT, which legally you are legally obliged to if your t/o exceeds the vat threshold limits you would need to review your product sales prices. Either you absorb the vat or you charge it on your sales. Whether vat is charged on postage depends on the service you use. A courier service may be subject to Vat but Post Office Mail is not subject to vat. If you use an accounts program vat returns are calculated automatically. It makes no difference that you sell on line. ============= Post Office Mail is not subject to vat I think you should review that comment! Although VAT is charged to you, in most cases, you have to add it to 'sales' price. ============= Hello, My business is doing well at the moment and is growing quiet well. My profit margin is high which is great, but when/if i get to the time i have to register for VAT that comes back at me big... If i buy my product at ? and sell it for ?3 i will make ?0. However when i am VAT registered i will claim back ?.53 and pay ?.28 so i will loose ?.75 on each sale (stop me if i am wrong anywhere here). So if i sell 100 products per week thats ?75/week loss. (these numbers are just for example) My worry is i predict my turnover to be close to the VAT threshold, and if my turnover is slightly over (e.g. 68k - 75k) i will end up loosing thousands, aswell as having to do more work (VAT every 3 months) I do not really want to stop trading, but i do not want to go over the VAT threshold until i am satisfied i would be well over it so i dont loose money. Any advice? Also, i sell online and post my product. If i sell for ?0 and charge ? postage, do i pay VAT on ?3 or on ?0? can i claim the VAT back on postage? Thanks in advance :) You're confusing YOUR profit margin with YOUR selling price and how VAT works, but we can fix that!. Taking your example :- If you currently buy an item at ?.00 and sell for ?3 then you make ?0 profit. If VAT registered, you will buy the item for ?.00 and this will have VAT of 45p (not 53p) on it when you buy it. This 45p is known as input VAT (VAT coming into your business). You then sell the item still at ?3.00 + VAT of ?.28 so your customer pays the price of ?5.28 you pay over ?.28 to HMRC and you still get to keep ?3.00 profit margin is the same and indeed, now you can reclaim 45p as well so profit is now ?3.45 If by adding VAT your prices are no longer cheap then you can consider reducing your price/profit margin a little to soften the blow as per Certax's post. For example, you could sell the item at ?1.49 + ?.01 VAT thus sell at ?3.50 (only 50p more than now) and still recover the 45p on the original purchase thus ?1.49 + .45p = ?1.94 less your purchase cost of ?300 thus a slightly lower profit of ?.94 - this is just an example of course. I trust that makes sense and you can nopw see that you will not be making a loss at all. You either add VAT to your prices and keep your profit margin the same or you lower your profit margin to accommodate some VAT so as not to lose your customer base/be uncompetitive. If you exceed the turnover limit, it is mandatory that your register for VAT. If you don't you'll get away with it for a while then HMRC will inspect you (they will visit VAT unregistered business the same as VAT registered ones and if they find you owe them VAT they'll want it from you regardless). With regard postage. The postage will follow the VAT rate of the goods you are posting. If you are posting books, then books are all zero rated meaning you charge VAT at 0% (yes, basically not charging VAT) and so postage will be the same, zero rate. If you are posting out DVD's or toys, etc then the postage will be plus VAT so if you charge ?.00 for postage now, when VAT registered you'll have to charge ?.53 and pay 53p over to HMRC (but note your customer pays the postage cost so you're not out of pocket at all). Royal Mail postage is exempt from VAT when provided by the Royal Mail so if you buy a book of stamps they will be VAT exempt but if you then use those stamps to stick onto parcels to send out to customers then you add VAT on top!. If you can let us know what you actually sell (unless it is sensitive) then the advice may need refining in terms of postage treatment and VAT liabilities. Also, if you sell outside the UK would be useful also. 3pic. ============= Post Office Mail is not subject to vat I think you should review that comment! Although VAT is charged to you, in most cases, you have to add it to 'sales' price. Most cases but not all, my quick comment should have stated this ============= Thank you all for your replies :) but if you are retailing you could maybe join the flat rate scheme, whereby you just pay 5-6% of your turnover, but you can't claim any thing back but it saves a lot of paperwork I have never heard of this? I thought there was just 1 rate and thats what everyone pays. If you currently buy an item at ?.00 and sell for ?3 then you make ?0 profit. If VAT registered, you will buy the item for ?.00 and this will have VAT of 45p (not 53p) on it when you buy it. This 45p is known as input VAT (VAT coming into your business). You then sell the item still at ?3.00 + VAT of ?.28 so your customer pays the price of ?5.28 you pay over ?.28 to HMRC and you still get to keep ?3.00 profit margin is the same and indeed, now you can reclaim 45p as well so profit is now ?3.45 If by adding VAT your prices are no longer cheap then you can consider reducing your price/profit margin a little to soften the blow as per Certax's post. For example, you could sell the item at ?1.49 + ?.01 VAT thus sell at ?3.50 (only 50p more than now) and still recover the 45p on the original purchase thus ?1.49 + .45p = ?1.94 less your purchase cost of ?300 thus a slightly lower profit of ?.94 - this is just an example of course. I understand what you are saying, but i dont want to change my price, its a good price and i dont want to increase it for VAT purposes. I sell adult clothing online. (haha i just noticed when i said adult clothing you might be thinking dirty, i say it as childrens clothing is VAT 0 :D )I am still not sure about the postage part. Are you saying if i sell for ?0 with ? postage i have to pay VAT on the ?0 and VAT on the ? seperatly, or VAT on ?3? The whole sale is for ?3. Can i claim VAT back from the postage? The postage i use is just standard royal mail, 1st class, sometimes other services like recorded delivery, but not a courier. It would be much much easier if i pay VAT on the sale price inc. postage, but is that how it works? Also, someone was telling me today that VAT is subject to 12 months rolling, and not a year. Is this true? I assumed it was 67k/year and after your year you started back to zero and go again like income tax. So, if my years go as so: Month 1 - 2k Month 2 - 2k Month 3 - 3k Month 4 - 4k Month 5 - 6k Month 6 - 9k Month 7 - 7k Month 8 - 7k Month 9 - 6k Month 10 - 4k Month 11 - 5k Month 12 - 8k Year total 63k year 2 month 1 - 5k month 2 - 5k ------ So does this mean i will have to register for VAT in a point of month 2? Because within the past 12 months (10 months of year 1 and 2 months of year 2) make my turnover over the threshold. Please tell me this is not true :( I sell clothing which is seasonal, so i am busier in the summer and at xmas, so i was planning on closing after xmas for the holidays anyway, i can afford not to work for the whole of January which i have been considering, but if my VAT isnt 'reset' then i guess it may reach the threshold if i close for a bit or not. ============= Yes you register when you turnover for the previous 12 months is over the threshold - see here: http://www.hmrc.gov.uk/vat/reg-how-to.htm When you must register for VAT If you are in business, you must register for VAT if your turnover for the previous 12 months is above ?7,000. This is known as the VAT registration threshold. It changes regularly, so you should regularly check your turnover against the current threshold. You must also register for VAT if: you think your turnover may go over the threshold in the next 30 days you take over a VAT registered business as a going concern you are selling goods into the UK from another country in the EU and exceed the 'distance selling threshold' - see the section below on registration and international trading you acquire goods from other countries in the EU totalling more than ?7,000 in a year - see the section below on registration and international trading And details on all the vat schemes are here: http://www.hmrc.gov.uk/vat/vat-account-choose.htm You might do well to get some help from an accountant on this ============= Hi, yeah afraid it is a rolling 12 months, so looks like you'll have to register, i also sell clothing in a B&m shop and found the flat rate scheme saved me money as, has been said, you either have to charge the customer vat or absorb it yourself, well your not gonna charge them it are you, coz they'll run a mile when you're prices go up. you're never gonna reclaim more than you're paying because you obviously sell at more than you buy for (hopefully) eg, you buy for ? (53p to claim) but sell at ?1.75 (?.75 to pay) difference of ?.22 to pay, but join the flat rate (clothing retail - theres different sectors) and you pay 5% of turnover for 1st 12 months, just 59p (goes up to 6% after 1 year and theres no paperwork to do, (well 1 form to fill in, but no receipts to trawl through etc) hope this helps. I wish my shop turned over as much as you, maybe you could pm me the details of what you sell in return for my kind advice as we are really struggling at the mo, lol. But like i said earlier i have just deregistered as we are doing so crap so no more for me yippee, because it is just money down the drain as far as im concered, i think you should only have to pay vat on anything over the 63k (or whatever the rate is at the mo) It was a real bugbear of mine which is why i've ranted in for so long. ============= I have never heard of this? I thought there was just 1 rate and thats what everyone pays. There are actually two VAT rates (17.5% and 5%) or three/four if you include zero/exempt, however.... ....for small businesses (roughly under 150k) you can opt to join a scheme whereby they guess your inputs based on the average retailer. The reply above suggested that this might be 5-6% for retail, but do check. I would think they may separate out internet retailing since there are clearly less overheads. However, looking at your margins, they seem quite high, so you would almost certainly benefit from the flat rate (plus it makes the work a lot easier) This rate is comparable not to 17.5% but to approx 15% since it is levied on gross turnover - that is to say that if your flat rate was 5% they are assuming that your inputs amount to 2/3 of your outputs. In your case your inputs amount to about 1/4 so you would be much better off. Bear in mind it is not only the cost of products but also the light/heat/computing etc etc that are used to make the sales, so your inputs are probably a little higher than you suspect. ============= Retailing is 6% less 1% discount in first year of registration (its 2% if you only sell childrens clothing) under the flat rate scheme. You still have to charge VAT on your sales but the gap between what you pay over and what you can keep is fairly large so may still work within profit margins. ============= thanks for all the replies guys :) It looks like i will use the flat rate; if i turnover 70k i will only be paying 4.2k in VAt (right?), and since the turnover would be up (from 67k) i would make more anyway so i am not going to be out of pocket by great amounts like i thought i would if my turnover reaches VAT registration level but is still relativly low; as you say its less work and headaches aswell. I wish my shop turned over as much as you, maybe you could pm me the details of what you sell in return for my kind advice as we are really struggling at the mo, lol. haha! i just sell online from my website, but i have been into website design/development for ages, the majority of sales are from good SEO, when i do more advertising i think (hope) my turnover will be higher :) ============= |