newbie VAT question, importing from EU

[Deleted member 140971]

Hello all,

I am looking into avenues for starting a business, one of the places I hope to acquire goods from is a company in Belgium. The company requires you to be VAT registered to do business with them. They have an excellent array of goods at great prices which makes me wonder about registering voluntarily.

So here is an example I'm trying to wrap my head around: if they sell a product for £50 excl. VAT.

That means I will actually pay £50 * 1.2 = £60 (£10 VAT which I 'should' be able to reclaim, more on that later)

Let's say I sold the product for £70 incl VAT (or 70 /1.2 = 58.33 excl VAT). That would mean the following.

VAT would be reclaimed of £10 (£60-£50). Sold with VAT diff of £11.67 (£70-£58.33) so HMRC gets VATSold-VATRecalimed from me (£11.67 - £10 = £1.67). so my profit margin is (£70-£60)-£1.67 = £8.33. (before corporation tax and postage).

Is my example correct? I believe I will actually pay the VAT on the product when it enters the country and I pick it up (on top of duty tax), not when I pay the company in Belgium, is this correct?

I understand that reclaiming VAT from European countries might not be as simple as it is with the UK. The HMRC website states, under the "VAT on goods from European Union (EU) countries" section:

"... you can normally reclaim this VAT, if the acquisitions relate to VAT taxable supplies that you make."

That seems quite vague and wordy to me. Can anyone shed some light on this for me?

 

[Scalloway]

If you are a UK VAT registered company quote your VAT number to the Belgian company and ask them to zero rate the supply of goods.

 

[Deleted member 140971]

If you are a UK VAT registered company quote your VAT number to the Belgian company and ask them to zero rate the supply of goods.

Thanks for your reply Scalloway.

Let's say then that they sent the goods zero-rated because I am VAT registered. How would that effect what I pay hmrc and my book-keeping? Would it just exclude the need to pay VAT to retrieve it back?

In the example above, if I received the item having paid £50 (zero VAT added), then sold it to a customer for £70 (incl VAT, or £58.33 excl.vat) that would be an initial profit of £20. Then would I have to pay HMRC the entire 20% VAT so it would leave me once again with £8.33?

I suppose I would then record this as a zero rated item received (which would still need to be recorded?) then sold to a customer with the standard VAT info required and put into my books?

In that case it would probably make things a bit easier to see what is going on, but have no effect overall. Is that what you intended to point out?

 

[faradaykeynes]

Good from Belgian company will be zero rated once you supply them vat number and need to be reported in box2 on your vat return.

Even if you decide to not get it zero rated it wont change your profit

 

[Scalloway]

Yo need to record the purchase as a zero rated purchase and include it as a purchase on you VAT return in box 9 on your VAT return.

You also need to record what is known as Reverse Charge VAT. Calculate 20% of the purchase price (ie UK VAT) and put that figure in Box 2 on your VAT return. You must also add this figure to the total of VAT on purchases in Box 4. This means that the net effect on VAT payable to HMRC is zero.

 

[faradaykeynes]

Sorry not box2, you will record goods as zero rated as normal and will be part of your box 7 figure and will also mention in box9. No reverse charge vat int his case, its not a service