New to VAT

[Anon25627]

Hi

I am a student (so a bit new to business) and have been lucky enough to get a turn over that is over the VAT Threshold, so I must now start charging my customers VAT. With a VAT number in the post, I've decided to adjust my pricing in advance (I have shut up shop for now, so I can claim back VAT later).

Should I be adding +20% to my items? I know I must charge 20% VAT but I was wondering if I should only increase my base price by the amount of VAT I can't claim back from materials?

I will try and explain what I'm asking a bit more clearly.

Say before, I was selling a product for £100 (ex VAT) and the materials to produce the item cost £20 (ex VAT).

I would have been paying VAT on that £20 -- so the real cost would be £22 to me. As I can now claim that £2 back, should I make my product £98?

Thanks, and happy to be join this new forum

 

[Bob]

Have you already registered for VAT?
Do you sell to VAT registered businesses or to the end consumer?
The input tax charged on £20 at 20% would be £4 not £2
Previously your profit would have been £76.
If you want to make the same profit, and the product is not price sensitive, you would need to charge £20 + £76 + VAT on £96 I.e. £19.20 = £115.20

 

[Bob]

That does of course assume that your product is subject to Standard Rate VAT

 

[Lee Murphy]

With a VAT number in the post, I've decided to adjust my pricing in advance (I have shut up shop for now, so I can claim back VAT later)

You will be able to reclaim the VAT from your specified date of registration so you don't necessarily have to shut up shop. You can also claim back VAT you have paid prior to registration. This can go back 4 years for stock and assets you still have at the date of registration and 6 months for services.

Your price point shouldn't be solely based on the VAT margin but rather market forces, so if you suddenly become more expensive than your competitors post registration, then it might be worth considering a lower margin to maintain your level of sales. It is always worth price testing anyway.

Hope that helps

 

[Anon25627]

Hi

Thanks for the reply. I have indeed registered for VAT. I did so a couple of weeks ago but HMRC told me that they currently are taking about 4 weeks to fulfill VAT registration.

Do you sell to VAT registered businesses or to the end consumer?

My market is completely aimed at consumer and is not B2B at all.

Standard Rate VAT

My products are alas not VAT exempt. I also have to pay import duties as manufacturing is done abroad.

reclaim the VAT from your specified date of registration so you don't necessarily have to shut up shop

I'm aware I can do that, however it says on the HMRC website that I can't charge VAT in the interim until I get my VAT number, so I'm reluctant to do this for now as I'd be paying VAT (and while I'd be able to claim back VAT on materials I wouldn't be able to charge my customers the rest). I think I've got that right?

Thanks once again for your help.

 

[StevensOnln1]

You cannot call it VAT until you have your VAT number but there is no reason to shut up shop when you can adjust your prices to allow for the VAT that you will be paying over later.

 

[GLAbusiness]

You don't "have" to change your price by a fixed amount. What you need to do is decide how much you can charge for your product in terms of what the market can stand and the effect on volumes of your new prices combined with the profit you want to make. That will give you the VAT inclusive price which you will charge to your customers. Then, when you deduct the VAT element from that price you get the income to your business, which must be enough to cover your costs and give you the margin you are looking for. If you simply increase your price by the VAT element you could price yourself out of the market (assuming your customers cannot reclaim the VAT element). It is a business decision which you must make.

 

[Anon25627]

Hello

I appreciate your advice here. I got my VAT Number today, but I would like a bit of advice to help me balance the books. Unfortunately I have a nasty issue of US dollar purchases for materials (where I pay import duty), this means that the amount of VAT I can claim back per product can vary. I only accept payment in GBP however.
How do people account for this? Do they take the weakest rate or the highest in to account when they're working things out. Of course I understand I pay the rate (plus handling) on date of entry of goods

 

[StevensOnln1]

Just use the actual exchange rate for each payment.