VAT to retail

[surge700]

Hi,

I am confusing myself with VAT issues. Hopefully someone can help :redface:

I am soon to set up a ltd company which will supply products to retail companies. I have talked product prices with a few retailers. We agreed on a price for a product without mentioning VAT.

At the time, I hadn't got around to working out if i needed to register for VAT. I am now working out whether I need to register, and my thinking is that because I am importing products, it would probably be best to register so that i can claim back import VAT as input tax.

However, when I talked prices with a retailer no VAT was mentioned on the unit prices. Will retailers automatically assume VAT will be added on top (do they just get it back from their customers? Does this mean the RRP will have VAT added on top? or do they expect the VAT to come out of their margin, and charge the RRP with VAT included? Maybe they even want the VAT to be charged, so they can claim it against their (larger) output tax (which is going to be paid whatever happens) saving them money?).

If they assumed VAT was included in the prices discussed, it may be worth me not registering and claiming back my import VAT costs..


Sorry if that doesn't make sense. Please ask questions if it doesn't!

Thanks in advance,
Jonathan

[bwglaw]

In my non-accountant opinion you should register for VAT for reasons given, more so if you are likely to turnover £68K/pa.

It is 'custom' that in a business-to-business context prices agreed are exclusive of VAT. This should not cause your supplier any detriment as they are likely be VAT registered.

Supplying to consumers, prices should be inclusive of VAT.

[surge700]

Hi thanks for your reply,

What you said is what I was thinking, but I had worries that because retailers are supplying to consumers, their vat will come out of their margin to maintain the RRP that we discussed. As we discussed margins without mention of vat, they may have assumed that my price included vat so they still make a similar margin when charging a vat inclusive RRP.

I am currently doing a quite large costs and profit table of myself and the retailers I will supply, including all the different vat options. I think this is my best bet on finding out the best option.

Thanks again.

[yorkshirejames]

Hi,

I am confusing myself with VAT issues. Hopefully someone can help :redface:

I am soon to set up a ltd company which will supply products to retail companies. I have talked product prices with a few retailers. We agreed on a price for a product without mentioning VAT.

At the time, I hadn't got around to working out if i needed to register for VAT. I am now working out whether I need to register, and my thinking is that because I am importing products, it would probably be best to register so that i can claim back import VAT as input tax.

However, when I talked prices with a retailer no VAT was mentioned on the unit prices. Will retailers automatically assume VAT will be added on top (do they just get it back from their customers? Does this mean the RRP will have VAT added on top? or do they expect the VAT to come out of their margin, and charge the RRP with VAT included? Maybe they even want the VAT to be charged, so they can claim it against their (larger) output tax (which is going to be paid whatever happens) saving them money?).

If they assumed VAT was included in the prices discussed, it may be worth me not registering and claiming back my import VAT costs..


Sorry if that doesn't make sense. Please ask questions if it doesn't!

Thanks in advance,
Jonathan

Impossible to say what their (and your) intentions might have been.

In general I would agree with BWG that a trade price would be VAT exclusive, and a RRP price would be inclusive.

May I recommend you speak to a good accountant first of all, in order to ascertain whether indeed you ought to register.

[surge700]

In general I would agree with BWG that a trade price would be VAT exclusive, and a RRP price would be inclusive.


That is what it boils down to - normally is the discussed trade price VAT exclusive and an RRP inclusive? Does anyone else have an opinion?

After doing the maths, it makes no odds to the retailers profit (providing the statement above was true) whether I'm VAT registered or not.

It does however increase my profit to be VAT registered so that I can claim shipping VAT back.

[FreelanceSoftwareDeveloper]

If your customer, the retailer is VAT registered then you probably should be too.

Say you import an item at £100, you will pay VAT on the import so it will cost you £117.50.

If you have agreed a price business to business of £200 and the retailer is VAT registered then this will be assumed ex VAT.

If you are VAT registered you claim the £17.50 back and invoice the retailer £200 + VAT so £235 and they claim the £35 back.

So being VAT registered, profit is £100.

If your not VAT registered then you can't supply a VAT receipt so would have to invoice at £200 and you can't claim anything back, profit is reduced to £82.50.

If the customer is not VAT registered such as a consumer, then to sell at £200 you would have to actually sell at £170.21 + VAT if you were registered so profit is £70.21.

Finally if neither party is registered you buy at £117.50, sell at £200, profit is £82.50

The general rule is if you sell to VAT registered customers and buy VATable supplies then it's beneficial to register. If you sell to non-VAT registered customers then it's best not to register but if you are going to turnover £68k+ a year you have no option.

[yorkshirejames]

If your not VAT registered then you can't supply a VAT receipt so would have to invoice at £200 and you can't claim anything back, profit is reduced to £82.50.

You can however act as a 'middleman' which can allow you to pass the original receipt to the purchaser - not that you would really want to do this of course.