Early VAT Registration.

[Toon]

How could I calculate whether it's beneficial to register for VAT before reaching the threshold?

In my first month of trading we've turned over £35k so it won't be long before we hit the threshold anyway.

The reason I'm asking about doing it early is because both eBay and Amazon are funny when you aren't registered - in fact eBay have suspended us but they only generated less than £4k of our revenue. Also some suppliers won't deal with us until we're VAT registered.

So what's the savings of not been registered? If I lost out on say £4k worth of profit in the next 3 months by not being registered would that outweight the cost of being registered?

 

[Scalloway]

Can you increase your prices by 20% to cover the VAT payable on the sales?

 

[Toon]

Can you increase your prices by 20% to cover the VAT payable on the sales?

Our prices are set by the manufacturers RRP so already include the 20% VAT so technically at the moment I guess we're making that extra 20% profit...?

 

[Scalloway]

Yes you are making extra profit but you can set against that the VAT the manufacturer charges you which you can reclaim if you are registered.

 

[WaveJumper]

Question we see on here all the time. So at the moment your technically 'pocketing' the extra 20% if your VAT registered you either going to add the 20% to your prices, or as above mentioned absorb some of the increase in your profit.

The big question for you is how does this make your products compare in price to your competition will your business still be viable. Don't forget you will be claiming back vat on your purchases so you need to take this into account.

 

[Ozzy]

As you are forced to sell at RRP (are these Apple products? LOL), I assume you are dealing B2C, which also means that selling at RRP won't make a difference to your customers.

On the face of it and so long as your business remains profitable your net profit will decrease a little by registering for VAT, because you'll be claiming back less than you are paying to HMRC. That's the crux of it.

 

[boxlot]

If you already turned over £35K on first month this means you have to register for VAT on third month anyway. Probably sooner as the registration takes some time as well.

In general, yes you're making more profit when not registered for VAT but you may loose on sales, depends on trade you're in. For example most construction companies would avoid buying from non VAT registered business as they can't claim back VAT etc.

 

[UK Contractor Accountant]

Need to look at the affect of being vat registered on your Mark up/Margins.

for example if you current mark up is 25% - buy in for £100 and sell for £125.

Gross Profit Margin is 25/(100+25) = 20%

so if turnover is £35K your gross profit before overheads = £7K (£35K x 20%)

if GP% drops to say 15% your gross profit drops to £5.25K (£35K x 15%)


When Companies House forces companies to publish their P&L Account these mark ups/margins will be available for public inspection!

 

[DontAsk]

Can you increase your prices by 20% to cover the VAT payable on the sales?

Yet again. It's almost certainly not a 20% increase.

There will be savings due to the input VAT paid on supplies.

 

[Ozzy]

Thing is, I read that with their particular products, they are unable to adjust their sale price;

Our prices are set by the manufacturers

So the only way to improve their profits will be by saving costs elsewhere in the business.

 

[Byzantium]

It is a non argument. They will need to be VAT registered in a few weeks.

Unless VAT registration is immediate these days, the bigger issue is that they will cross the VAT threshold without a VAT number to use !

I'd just get on with registration.

 

[UK Contractor Accountant]

Well just released - HMRC goes live with VAT Registration Estimator tool
HMRC has launched a digital tool designed for small businesses to check the potential implications of VAT registration and experiment with different inputs and outputs.

HMRC guidance on how to use the VAT Registration Estimator states it should take around 20 minutes to complete on first use. Before using it, businesses should have information about their income and costs (and the VAT rates that apply to them) to hand.

The tool then guides the user through a number of fields, including whether the business is (or will be) based in the UK, and what the approximate business income and business costs are for the time period they wish to estimate (up to 12 months).

Businesses can choose appropriate VAT rate(s) for their business income and costs as an estimated percentage of zero, reduced or standard rated, or VAT-exempt, goods and services. They can then input if they would prefer to add VAT to, or absorb VAT into, their current or estimated selling price.

The tool provides links to VAT guidance where appropriate and offers help completing the boxes.

Users can then check their answers and complete the form to review the results, which can be saved and printed. VAT Registration Estimator guidance tool sessions end after 15 minutes of inactivity.

Check what registering for VAT may mean for your business

Use this tool to estimate what registering for VAT might mean for your business.

www.gov.uk

 

[Toon]

Well just released - HMRC goes live with VAT Registration Estimator tool
HMRC has launched a digital tool designed for small businesses to check the potential implications of VAT registration and experiment with different inputs and outputs.

HMRC guidance on how to use the VAT Registration Estimator states it should take around 20 minutes to complete on first use. Before using it, businesses should have information about their income and costs (and the VAT rates that apply to them) to hand.

The tool then guides the user through a number of fields, including whether the business is (or will be) based in the UK, and what the approximate business income and business costs are for the time period they wish to estimate (up to 12 months).

Businesses can choose appropriate VAT rate(s) for their business income and costs as an estimated percentage of zero, reduced or standard rated, or VAT-exempt, goods and services. They can then input if they would prefer to add VAT to, or absorb VAT into, their current or estimated selling price.

The tool provides links to VAT guidance where appropriate and offers help completing the boxes.

Users can then check their answers and complete the form to review the results, which can be saved and printed. VAT Registration Estimator guidance tool sessions end after 15 minutes of inactivity.

Check what registering for VAT may mean for your business

Use this tool to estimate what registering for VAT might mean for your business.

www.gov.uk

Well that was good timing - very useful, thank you!