My toy supplier playing silly games

[rokz_2005]

Hi, I own a company that primarily sells acrylic boxes for toys. I also sell related toys but in very small volume which compliments the acrylic box sales. The toy supplier is now adding a new condition to the contract to state that anyone not VAT registered will have their contract ended in April. Before anyone states the obvious, there are not viable alternatives. The problem is that I don't want to register for VAT which will drive up the prices of the acrylic boxes unnecessarily. I was wondering if I could open a VAT registered company to buy toys from, then sell them to my existing company and make sales as usual. I understand I will pay VAT twice, but if I reclaim VAT from company 1 then the VAT I was going to pay using 1 company remains the same.
My concerns are
* Can I use the VAT registered company for that reason, knowing that it will never really make any money?
* Can I make two companies that sell the same products? Essentially one is B2B and the other B2C.
What alternatives do I have?

 

[WaveJumper]

Welcome to the UKBF there are plenty of accountants here who I am sure will be able to offer some sound advice on this but personally I really don’t see the need and I think your just asking for trouble from HMRC, who can take a pretty dim view of this type of arrangement especially if they think its disaggregation of two links companies so tread carefully.

What reason has your supplier given for taking the action they are going to implement next year

 

[rokz_2005]

Welcome to the UKBF there are plenty of accountants here who I am sure will be able to offer some sound advice on this but personally I really don’t see the need and I think your just asking for trouble from HMRC, who can take a pretty dim view of this type of arrangement especially if they think its disaggregation of two links companies so tread carefully.

What reason has your supplier given for taking the action they are going to implement next year

I sent in a complaint and there was no response. It seemed that certain toys became popular a couple of years ago and a lot of bedroom sellers jumped on the bandwagon. They are now trying to remove them, in my opinion and of some of my peers and some of us are getting hit in the process.

 

[fisicx]

It happens. If they want you to be vat registered then that’s what you need to become.

They are not obliged to sell to you or anyone else.

 

[rokz_2005]

It happens. If they want you to be vat registered then that’s what you need to become.

They are not obliged to sell to you or anyone else.

Hence, I'm looking for a legal workaround.

 

[Lucan Unlordly]

and a lot of bedroom sellers jumped on the bandwagon

...........are you a bedroom seller?

I had a similar situation when I started out which was sorted by my assurances that sales would continue to grow. The new broom strategy was to see of small spend account holders, which actually worked to my benefit.

 

[MOIC]

You have 3 realistic options:

1. Register for VAT.

2. Stop using the supplier.

3. Look for alternative suppliers/products.

If you're not the type of seller they want to stop supplying, then there's a 4th option - speak to them and convince them that you're not a bedroom seller.

 

[NicoJ]

Hi, I own a company that primarily sells acrylic boxes for toys. I also sell related toys but in very small volume which compliments the acrylic box sales. The toy supplier is now adding a new condition to the contract to state that anyone not VAT registered will have their contract ended in April. Before anyone states the obvious, there are not viable alternatives. The problem is that I don't want to register for VAT which will drive up the prices of the acrylic boxes unnecessarily. I was wondering if I could open a VAT registered company to buy toys from, then sell them to my existing company and make sales as usual. I understand I will pay VAT twice, but if I reclaim VAT from company 1 then the VAT I was going to pay using 1 company remains the same.
My concerns are
* Can I use the VAT registered company for that reason, knowing that it will never really make any money?
* Can I make two companies that sell the same products? Essentially one is B2B and the other B2C.
What alternatives do I have?

In answer to the question, no. Company 2 is not trading and therefore fails to be eligible for VAT registration. It would fail at the first hurdle and cause more issues than it solves.

You may want to look at flat rate scheme if you are eligible which may minimise the tax hit if you can't increase your prices. If you're not eligible and you absolutely need to use this supplier then you will have to rework your figures. You will then either take the on your profit or rethink the sales price.

 

[rokz_2005]

Thanks for all your advice. I think I'll go back to them and try to convince them to keep my contract.