Does vat work like this or am I crazy

[zogyboy]

Hi, all thank you for taking the time to read this and help me.

Ok so I am not anywhere near the fresh hold to make my self-vat registered with hrmc but what I read it could be a good idea to do so

Our business that is an Ltd is going to start to buy a lot of stock from UK wholesale suppliers that charge vat but I have read we can claim this vat back?

If we got 100 stock items for £100 eg they cost £1 each so the whosale company would charge us a total of £20 at making the cost £120 when then sell this product online charging vat to our customer

So we sell for 10p profit plus vat after all other fees we sell all 100 so our company make £10 and we also get the vat we first paid back as well am I right or am have I totally missed read everything

Sorry for my probably silly question

 

[londonbiz]

Yes, you are not taking into account the fact that you have to charge your customers VAT

It's not just a one way street

 

[Newchodge]

They cost £1 you charge £1.10 10p profit
They cost £1.20 (inc Vat) you charge £1.30 10p profit
They cost 1.20 (inc Vat) you charge £1.30 (inc Vat of 21.6p) profit 8.4p
If you register for Vat you have to increase your price to make the same profit.

 

[Mr D]

As a vat registered business you would be an unpaid tax collector for the government.

You pay vat when buying goods and services that are subject to vat. As you have likely done all your life.

Then when you sell you collect vat from the buyer. As vat is an added tax at 20 percent then 1/6th of what the buyer pays you is the vat.
Including on postage charge you are making.

So if you charge them 2 pounds plus 4 pounds postage then the buyer pays 6 pounds. One pound of that would be vat collected by you. And 5 pounds would be your money to be spent as needed.

Then every quarter you submit your vat return figures and the difference between what you have paid out in vat when buying and what you have collected when selling is what you pay the government.

 

[Gecko001]

There will be costs you will not be able to claim back VAT on, such as wages and items from companies who are not VAT registered, but you must by law charge VAT on every VAT rated item you sell. This means that in the long run the total VAT you charge will be more than the total VAT you claim back.

 

[Mr D]

There will be costs you will not be able to claim back VAT on, such as wages and items from companies who are not VAT registered, but you must by law charge VAT on every VAT rated item you sell. This means that in the long run the total VAT you charge will be more than the total VAT you claim back.

Unless selling a zero rated item like books. Not that many types of business will get paid VAT rather than paying it out every quarter though.

 

[Gecko001]

Unless selling a zero rated item like books. Not that many types of business will get paid VAT rather than paying it out every quarter though.

Correct Mr D. I should have mentioned, if the employee has bought the replacement clothes in the children's department, you will not be able to reclaim the VAT.

 

[EnhanceAccountancy]

It is also worth considering whether the Flat Rate VAT or Retail schemes will be worth joining (if you are eligible). This will depend on what you sell, how much you sell and what expenses you have though.