VAT question

[alexwilliams]

I'm no expert, but that doesn't sound like enough profit to me. You haven't said what the product is, but what if one breaks and a customer wants a refund?

Rob

We are estimated to sell around 100 products a day, there is no chance the product can break as they are subscription cards to wide range of popular items. The highest price item we sell is £32.

Thank you all for your advice

[alexwilliams]

Ok so im just about to buy my first lot of stock, Ive found a wholesale guy on the internet.

he say: If you are in the Uk we must charge you vat on the products i sell to you, but if you are VAT registered you can claim this VAT back from HMRC.

Is this correct? I didnt think u can claim VAT back on products you buy?

[James Smith]

Alex,

you can only reclaim VAT on purchase costs if you are VAT registered.

Generally speaking if you are selling to consumer then registering early as discussed earlier in the thread is a bad idea, as this is a real cost to your customers and will mean you take a reduced margin.

If you are selling mainly to VAT registered businesses then you will normally want to registered yourself as you will reclaim the cost of your VAT, and they will reclaim the cost of the VAT you charge to them.

Not got time for a full example this evening as about to eat, but this is a topic explored in detail my book that I cheesyly trail from time to time (see my website) about when to and not to registered for VAT. It is extremely important to understand these concepts in detail when working on wafer thin margins such as you are as it can mean the different between a decent business and a loss making one.

Regards,

[accountantpete]

Lots of things to consider here Alex - You can register for vat and then you can claim back the vat on purchases and any other business expenses but must charge vat to your customers.

Alternatively you can remain unregistered and sell the product for the same price as though there was vat on.

Basically if your customers are vat registered it is better to register yourself - if not it is marginally better to stay unregistered unless your overheads apart from purchases are high and include vat on them.

[alexwilliams]

When i go VAT registered and charge my customers VAT how is VAT calculated?

I.e
I buy an item at £10 i then pay 15% VAT on this (£1.50) total i pay = £11.50
I sell the item for £15 at my site. Do i add the VAT i paid (£1.50) onto the item or do i do £15+ 15% vat (£2.25) total selling price £17.25?

[wood1e]

If you sell your product at £32 now then you charge the same but add 15% (or whatever the VAT rate is once you register) for VAT.

If you buy at £10 then the VAT may already be included or there may not be any VAT attached to the product.

And the VAT you send of to Gordo is the difference between the VAT you charges customers and the VAT you are charge by your suppliers.

Plus whether you register for VAT is whether you believe or expecting to achieve £67000 in a twelve month period or exceed in the next 30 days!!! So it is not quite as striaght forward as breaking the threshold in one twelve month period.

Have a read of this Click Here

If you have lots of VAT attached supplies then I would regsiter for VAT now, and save yourself the hassle 8 months down the line.

[alexwilliams]

Thanks for the reply.

I'm still a bit confused... by it.

I have an account with a distribution company and the item i want is £13.11 + VAT (£1.97) total i pay= £15.08.
I sell the item for £17.49. So VAT i will charge is £2.62.

So i can claim the £1.97 i originally paid back from the tax man. So i send the goverment 65p (£2.62 - £1.97) ?

[wood1e]

You buy for

£13.11 + £1.97 VAT = £15.08

You sell at
£17.49 + £2.62 VAT = £20.11

Vat return would be:

£2.62 - £1.97 = £0.65

So yes you are correct.

[alexwilliams]

So i ONLY PAY THE DIFFERENCE from the VAT i paid on a item and the VAT i charge on selling the item on?

Not 15% of final value i charge?

[James Smith]

So i ONLY PAY THE DIFFERENCE from the VAT i paid on a item and the VAT i charge on selling the item on?

Not 15% of final value i charge?

Got it in one. You may well find in early periods that you actually receive a refund if your costs are higher than your sales - however when establishing which is best for YOUR business you need to look very much at your customers and if they can reclaim the VAT or not. That is to say whether or not it is a real cost to them.

As above registration is voluntary under a turnover of £68,000