Very basic VAT help

[Slinkie]

Hi folks,

I just need some very basic VAT help. All I want to know is how it works at a very basic level. I am looking to start up a limited company and in it's first year it looks like I probably won't get near the VAT threshold. I am trying to decided if I should register for VAT or not, here are my thoughts.

If I don't register for VAT then does that mean I just don't pay it when buying from suppliers or does it mean I pay it then claim it back? Also if it turns out I do pass the VAT threshold does that mean all my past purchases will need to have VAT payed for them?

If I do register for VAT then I have to charge my customers that extra amount to cover my costs but was thinking of charging my customers as if I had paid VAT then reap more return from each sale.

Can someone please let me know if I am on the right track here or care to explain the very basics of VAT to me.

For the record the business will be a PC leasing company leasing only to home users, not business.

Thanks

Matt

[bwglaw]

Whether you are VAT registered or not you have to pay the VAT added to any suppliers invoices. If your turnover exceeds or is reaching £61,000 then you must register for VAT

If you do register for VAT you have to add that to your invoices for all your customers. Not sure what you mean by the following statement:

If I do register for VAT then I have to charge my customers that extra amount to cover my costs but was thinking of charging my customers as if I had paid VAT then reap more return from each sale.

If your customers are largely home users and you are not reaching the threshold then I see little point in registering which will only increase your prices to the customer.

In any event, you should seek advice from an Accountant

[Slinkie]

If you do register for VAT you have to add that to your invoices for all your customers.

This is where I get confused, you say that I have to pay whether I am registered or not. Therefore say a widget = 100 without VAT, then to me it costs 117 whether I am VAT registered or not. Therefore if I wanted to sell it at cost I would have to sell it at 117 or I'd make a loss.

So how does not registering for VAT lower the cost to customers when i have to pay it to buy products to sell on. I can't see the benefit of registering Vs not registering.

[bwglaw]

If you are not VAT registered and a supplier invoices you £100 + VAT, you pay £117.50. If you are VAT registered you still pay £117.50. However, being VAT registered you can claim back what you have paid out in VAT. You cannot claim if you are not VAT registered.

If you are not VAT registered and supplier invoices you £100 + VAT thus £117.50 you need to charge your customer a minimum of £117.50

Make sense?


Jonathan

Disclaimer: IANAA

[Scott-CopyandDesign]

So how does not registering for VAT lower the cost to customers when i have to pay it to buy products to sell on. I can't see the benefit of registering Vs not registering.

Edit: Nevermind, Jonathan explained it anyway.

[Slinkie]

If you are not VAT registered and a supplier invoices you £100 + VAT, you pay £117.50. If you are VAT registered you still pay £117.50. However, being VAT registered you can claim back what you have paid out in VAT. You cannot claim if you are not VAT registered.

If you are not VAT registered and supplier invoices you £100 + VAT thus £117.50 you need to charge your customer a minimum of £117.50



Thanks for that, so where's the benefit of not being VAT registered? If you can claim VAT back you can potentially sell an item for cheaper than if you weren't. So why bother not registering if you can claim back some of your expenses?

[Matt1959]

The only benefit from being non vat registered apart from having less paperwork and scutiny is that if you are selling to the general public you will be, in simple terms, 17.5% cheaper than your competitor that might be registered - which is is a huge benefit. The only point in voluntarily registering for VAT is if you sell mostly to businesses that are registered because the VAT makes no difference to them cos they claim it back. If you are in this position, you can also claim VAT on your expenses which is a bonus. I registered voluntarily for VAT because 99% of my work was for VAT registered businesses. I wouldn't have done this if most of my work was for private customers.

[Kent Accountant]

Thanks for that, so where's the benefit of not being VAT registered? If you can claim VAT back you can potentially sell an item for cheaper than if you weren't. So why bother not registering if you can claim back some of your expenses?

Cost of widget £100 + VAT i.e. £117.50
Profit required £100

If Vat Registered
Net Cost £100
Selling Price £200 (£100 net cost + £100 profit) + VAT at 17.5% = £235

Net cost to VAT registered customer £200
Cost to non VAT registered customer £235

If not VAT Registered
Cost £117.50 (VAT cannot be reclaimed)
Selling Price £217.50 (£117.50 net cost + £100 profit)

Net cost to VAT registered customer £217.50 (They cannot reclaim the VAT you have suffered)
Net cost to non VAT registered customer £217.50

This is a simplistic explanation as it doesn't take into account VAT incurred on expenses or capital items, but it does show that if all your customers are VAT registered you can supply them cheaper if you are VAT registered but you will then be more expensive for non VAT registered customers

If all your customers are non VAT registered then you will probably be more successful if you are not VAT registered as you will either be cheaper to them or you can still charge the same price and make £117.50 profit

And if there are some and some then you have to do the sums ................