I don't understand VAT :(

[jv43]

Hi guys,

I'm sure I should but I don't understand how VAT works for a company.

We are very small beverage business that is not registered with VAT and we plan to buy many different things from suppliers (bottles, water, flavors, bottling service). They give us a price without VAT. Do we have to pay VAT to them and then do we have to charge VAT once we sell the finish product to a retailers or to a distributor? Sounds like a lot of VAT markups before it gets to the consumer

Thanks for your help

 

[kjmcculloch]

You'll need to pay VAT, but if you are not VAT registered you can't charge VAT so you just absorb it into your price. For example if you buy for £1 it’s £1.20 including VAT, you would just put your markup on this price.

If you were VAT registered you would recover the £0.20 VAT from HMRC but charge your customer VAT. For VAT it's normally the end user who is the only one who has to pay but can't recover the VAT.

Kris

 

[kevin.doran]

If you are not VAT registered you can not charge any on your sales - simple.

As for paying VAT on your purchases, that too will depend if your supplier is VAT registered and whether the goods they're supplying require VAT to be charged on them.

 

[jv43]

Thanks guys, So if I understand correctly even the distributors or retailers buying our products from us will not be able to claim VAT, unless we're registered? In other words we would be 20% more expensive than a competitor that is registered with VAT?

 

[UK Contractor Accountant]

Thanks guys, So if I understand correctly even the distributors or retailers buying our products from us will not be able to claim VAT, unless we're registered? In other words we would be 20% more expensive than a competitor that is registered with VAT?

You hit the nail on the head!- looks like you need to register for VAT.

 

[jv43]

Oh no sorry! I get it we don't have to pay VAT on what you sell if we're not registered. My bad!

 

[David Griffiths]

Oh no sorry! I get it we don't have to pay VAT on what you sell if we're not registered. My bad!

Not sure that you have got it. Your suppliers will charge you VAT and you have to pay that. That means that your cost for something from a VAT registered supplier will be 20% higher than your competitors who are also registered.

You don't charge VAT to your customers.

If your customers are other registered businesses it might be in your interet to register voluntarily but you really should take professional advice on your circumstances and whether it is worth it

 

[kelvin1950]

If you don't have an accountant, it's time to appoint one. If you do have an accountant, it's time you spoke to him/her.

 

[Jeremiah@RHJ Accountants]

If you don't have an accountant, it's time to appoint one. If you do have an accountant, it's time you spoke to him/her.

Agreed an accountant can advise you if being registered for VAT will be a good move in your circumstances.