VAT registration for import business - good idea to do it ?

[smirch]

Hi all,

im setting up a car parts import business, where the parts are coming from my german supplier - who has purchased them outside of the EU, so i believe the goods are in 'free circulation' or somthin - so i do not have to pay any import duties.

I have a few VAT queries -

Firstly as this is an import business should i register for VAT - will i beable to save money even though my sales will not reach the threshold for the first year?

I have already ordered £1k of stock - even though i am not VAT registered - - and therefore have to pay the german VAT! if I pay the german VAT will i be liable to any other taxes or VAT in the UK - i was reading something on HMCE website - saying that i wil have to pay import VAT - which confused me further!

I dont think its worth postponing the order untill i get a VAT number - but should i apply for 1 now?

my initial cusomters are going to be uk consumers - tho as the business progresses (in 3-6 months time) i will hopfeully be supplying uk businesses.

in the future i am also thinking of splitting my business into a wholsale/retail legal entities. is this good business practice? what are the benefits/costs to this ?

thanks for you comments

smirch

[MikeH]

I am no expert on importing and exporting but I can offer the following info.

If you are registered for VAT then they should be able to provide you with goods with no VAT if you supply them with a valid VAT number. This is then recorded on the VAT return.

As I said though this is not my area of expertise so I will leave the rest for the other forum members.

Mike.

[smirch]

yup mike got that, thanks tho, my main concern now is - will i have to pay VAT or any other tax again on my products in the UK, after the german dude has already charged me vat at 16% on my invoice?

the products have not ben shoppiped yet so i have got time to postone the order if needed!

-smirch

[Ozzy]

Hi Smirch,
If you supply your VAT number to the supplier of the other EU company, they should not add VAT to their invoices (so long as they disclose both yours and their VAT number on the invoice).

You must then declare the good imported to Customs & Excise (this is normally done automatically by the courier/export/import company you/they use). You then have to pay VAT to HMC&E on the price you have paid the German company, and I believe this is 17.5% as per normal rates.

[smirch]

ok,

i think im still missing the point - tho getting a little warmer ;-) with the input from the board

mabe if i re-phrase my concern it will help ?
....
so my situation is that i am not VAT registered,

so if the german company adds the german VAT to my invoice - is it correct that I dont have to declare my goods to customs AND i dont have to pay any extra VAT ?

or am i supposed to declare my goods anyway - but i do not have to pay any further VAT on my goods (as im am paying them in Germany @16%) ?

thanks

smirch

[David Shephard]

Hello Smirch,

You have been given some correct information, but not all of the information, by which you need to make your decision. I will now try and put this right.

Firstly, you DO NOT NEED to have reached the Vat Registration limit in turnover BEFORE you can register for Vat. Anyone can register for vat.

Secondly, once registered (and the date of your registration is important), any capital items you bring into your business which are less than three years old from the date of registration, can have the vat reclaimed, less any reasonable deduction for depreciation. For example, if you bring in a computer system, which cost £1,500 3 years ago and provided you still have the appropriate paperwork to prove purchase, you could introduce this into your business for a written down value of say £451 which for vat purposes would include Vat, and you could immediately reclaim £67 of vat on your first Vat return. Do this to all the capital items your bring in, and you may be surprised at how much Vat you can reclaim.

Thirdly, any goods (purchases/stock) which you purchase within three months of the date of registration, which you still have/hold AT THE DATE OF REGISTRATION, you can also reclaim any vat paid. For example, if you have purchased special company stationery for £750 and still have £700 worth at the date of registration, you can re-claim the vat on this, the same applies to the stock you have purchased from Germany, less of course any stock you have sold between the time it was received and the date of registration.

Fourthly, if you do decide to register for Vat, once you have been given your Vat Registration number by HMCE, pass this number onto your German supplier, who will then in future be able to invoice you at a zero rate, you will still need to add UK Vat at 17.5% when the invoice comes in, but you will be able to re-claim this back from HMCE.

If there is anything here you do not understand, I would be happy to discuss this with you on 01548 853165.

David Shephard

[smirch]

thanks David for your informative reply

one question tho - with regards to reclaiming the VAT in your post - will it be the same case as i would be : voluntary registering for VAT - i.e. were just starting out and will not reach the threshold for the first year of trading.

i think i read u cant claim back past VAT on purchases/stock if u voluntary register for VAT, is this not the case?

[Alpha]

Smirch

It makes no difference whether you are required to register or you voluntarily register for VAT. The rules are just the same.

[David Shephard]

Smirch,

Vat Regulations do not differentiate between voluntary or complusory registration. Once you are Vat registered the current Vat Regulations apply in either case.

I suggest you go onto the Customs and Excise Website and download their very useful Vat Guide, which covers every aspect of Vat Registration, including a useful section on importing and exporting.

You can also download their Vat Registration forms, which can be completed and sent to the Vat Registration Unit.

David Shephard

[Alpha]

David

I must correct some of the points.

You can claim back vat on goods purchased prior to registration if

a) The goods were supplied to the peson who is now registered
b) The goods were supplied not more than 3 years before the business was registered

c) The goods were obtained for use in the business which is now registered
d) The business still holds the goods or they have been used to make other goods which are still held.
e) A stock record of the goods is compiled showing quantities and dates of goods received, when they were used or when they were disposed of post registration

A similar process can be done for service items purchased up to 6 months prior to registration.


There is no requirement from customs to take into account wear and tear on a capita item. You either use it in the business in which case you can reclaim the vat or you do not in which case you cannot

[David Shephard]

Alan,

Absolutely right and very important, thank you.

However, your last point is very interesting. At a recent Vat Inspection of a client of mine, the depreciation method I used in my original post, was commented upon by the Inspector as being completely correct. He went on to say, that many people did not use a method of depreciation, which was incorrect and were therefore claiming back too much vat.

I did check this out with the Vat National Helpline before I embarked on this execise (albeit some two years ago - and have consequently used this method ever since), at the time I was "advised" to depreciate any capita items that had been "used" prior to registration and use the WDV in the last set of accounts, if there were any, or a calculated figure (with workings) if there was no previous WDV.

David Shephard

[Alpha]

David

Advice I was given when i began in practice was never give anything away more than you have to.

If an inspector queries the capital item just point him to the relevant notice( I think this is dealt with in the vat notice 700) where it does not even mention depreciating capital goods.

Depreciation is not an exact science anyway therefore I dont think customs can argue regarding any method chosen.

There is however an adjustment to VAT regarding items qualifying under the capital goods scheme where 'adjustments' are required to items after 5 and 10 years. This does include computer equipment but the value of a single piece of equipment(Not a network as they are several individual pieces) would have to be over £50k.

[William MacDonald Dodds]

I was hoping to import goods into UK. Now say its sent to a healthspa, could I write my name up in the receiving adress so that I receive it or is the person who receives the goods implied as being the import agent / freight forwarder, or the final adressee? I mean how could i possibly claim vat without having a vat number yet, having imported that first shipment with only an EORI, to a spa - so I couldn't claim that money, unless my name was added in the receive adres field, regardless its another company, or would that be illegal? I'm just curious because I find this odd - I mean is there no way of reclaiming VAT if I don't haev a VAT number, and the goods are actually purchased by someone else, and fetched on my behalf by an import agent and transported on my behalf by a freight forwarder to the final destination client?
Is that VAT then unreachable by yours truly?
I'm also curious as to a trusty import agent, and a good, affordable freight forwarder, if anyone can help this ignorant guppy spawn of an importer, it would be great.
Wills.

[David Richards]

Wow, resurrecting a 5-and-a-half-year old thread... that must be a record. To be honest, I'm not sure I understand what you are trying to do, but I can answer this...
I mean is there no way of reclaiming VAT if I don't haev a VAT number.Correct, there is no way. Trying to fiddle the system is called 'fraud' and will incur the wrath of HMRC.

[William MacDonald Dodds]

I sure as heck won't do that, sweet lord, I didn't think it would amount to fraud. but what your saying is when I DO have a VAT number, that I CAN *then* only get the money back. Why do they charge it in the first place, if you get it back eventually, isn't it just a procedural waste of time in that case, I don't understand?
Her does HMRC make money off the rent of the money in the bank, I suppose?
Interesting... I find this very amazing system. That people actually know what's going on.

I don't suppose you know anything about importing with only an EORI and what that would entail, I mean I can go up to 68 000 pounds yes?
I mean the VAT limit.

[elainec100@cheapaccounting]

this thread is over 5 years old - didn't know they held them for that long.

[David Richards]

Why do they charge it in the first place, if you get it back eventually, isn't it just a procedural waste of time in that case, I don't understand?This forum probably isn't the best place to learn about the basic principles of VAT. But I can recommend this Wikipedia article (http://en.wikipedia.org/wiki/Value_added_tax) and this introduction from HMRC (http://www.hmrc.gov.uk/vat/start/introduction.htm).