Help with wholesale and VAT - meeting tomorrow

[IvoryMint]

Hello,

I have a meeting tomorrow with a potential big buyer, we're fairly new to supplying wholesale and as such Im trying to be as prepared as possible for this meeting.

At the moment we aren't registered for VAT but if this meeting turns out well I expect we will need to within a 6-10 months of trading with these guys. (We sell greetings cards).

So my question is how do I work out what to charge them. Obviously in the beginning we wont be charging VAT but when we do, would we absorb that and not change the price? Obvs. they aren't going to change their retail price so Im wondering if they'd expect me to come to the meeting with the figures inc. VAT?!

I've been figuring the prices by working backwards (example below) <-- the numbers are figurative.

£10 (RRP) / 5 (the percentage they want to add to wholesale) = £2 <--wholesale price
£2 (wholesale) - 20% (VAT) = £1.60
£1.60 - £1 (Costs inc VAT) = £0.60

So does this mean I would take home 60p after VAT, which would mean that before im registered for VAT I would take home £1.40? (ignoring corp tax)

Sorry if this seems like a stupid question!

 

[David Griffiths]

I'd guess that they are expecting to be charged £2 plus VAT for the wholesale price. So if you aren't VAT registered you tell them this and charge a flat £2. When you do register, simply charge the VAT on top - that won't concern them at all as they will be able to recover it.

It might be worthwhile registering for VAT even before you hit the registration threshold, if most of your sales are to other VAT registered businesses. As above, they won't be concerned about VAT and it would enable you to recover the VAT on your costs - your input tax. If the amount of input tax is lower than average for your sector, you might benefit from using the flat rate scheme.

It's something that needs to be thought through, but could be very worthwhile - discuss it with your accountant, but I guess that's not going to happen before tomorrow's meeting, For that work on the basis that it's £2 ex VAT

 

[YesMan]

Is your customer VAT registered? If they are, they won't be able to claim any VAT back until you are registered & actually charging it. So if your price is £2 pre-VAT registration, adding 20% on won't make a difference to your customer as they will then be able to claim the VAT back.