Non vat registered company. How do I deal with vat on purchases.

[Lewis Morris]

I'm a bit confused about the rules with VAT, and I wondered if someone could clear something up for me.

I've started as a sole trader and don't expect to hit the VAT threshold.

I'm buying product x for £5 and my supplier is charging me £1 vat. This means that my overall cost is £6.

My understanding is (and its most likely wrong).

If i were to sell that product as a VAT REGISTERED company. I would work off of the net price and the customer pays the final vat? I would charge them say £10 + VAT. The Vat is essentially passed down the line but it would accumulate along the way. Would I pay the £1 vat the supplier charged me and the customer would pay the additional £1 vat I charged them?

But as a sole trader that not vat registered do how does it work? I don't charge the customer VAT so I pay it all and that that? I always need to be working from the gross price I pay from a supplier?

Does becoming vat registered mean that my prices automatically become higher as i have to add vat on top (or i have to loose money) ?

Also when I submit self assessment - how is this vat dealt with?

Any help appreciated, even a link to a good article would help me massively.

Thank you.

 

[StevensOnln1]

If you register for VAT you would reclaim the VAT on your purchases and charge VAT on your sales, then pay the difference to HMRC each quarter (or get a refund if you paid more VAT than you charged).

If you aren't VAT registered then VAT is just part of the purchase cost, you don't account for it separately anywhere.

 

[Mr D]

You pay vat because your supplier is vat registered and has to charge you vat.

You do not charge your buyers vat. So you could buy for 6 pounds and sell for 10, recording the transaction simply as that.

If you did register for vat you still pay vat on purchases - your supplier still has to charge you. However then you would also charge your buyer vat. And when it comes time to tell HMRC about the vat you deduct the vat you have paid against the vat collected. So effectively you are not overall paying vat on your purchase.

Up to you how much or even whether to put prices up when registered for vat. You have to account for the vat but if you want to keep prices the same and pay the total out of what would be your profit then you can do. Or you could put your price up 5 percent. Or 10 percent. Or whatever you like.
However 1/6th of what the buyer pays you is vat on standard rated items. Your price that you want plus 20 percent for the government. 10 pounds to you, 2 pounds to government, buyer pays 12 pounds.

It can be a good idea to factor in the vat in your pricing from the start, that way you do not have to increase your price.

 

[Lewis Morris]

You pay vat because your supplier is vat registered and has to charge you vat.

You do not charge your buyers vat. So you could buy for 6 pounds and sell for 10, recording the transaction simply as that.

If you did register for vat you still pay vat on purchases - your supplier still has to charge you. However then you would also charge your buyer vat. And when it comes time to tell HMRC about the vat you deduct the vat you have paid against the vat collected. So effectively you are not overall paying vat on your purchase.

Up to you how much or even whether to put prices up when registered for vat. You have to account for the vat but if you want to keep prices the same and pay the total out of what would be your profit then you can do. Or you could put your price up 5 percent. Or 10 percent. Or whatever you like.
However 1/6th of what the buyer pays you is vat on standard rated items. Your price that you want plus 20 percent for the government. 10 pounds to you, 2 pounds to government, buyer pays 12 pounds.

It can be a good idea to factor in the vat in your pricing from the start, that way you do not have to increase your price.

Thanks for this, perfect.

 

[Lewis Morris]

If you register for VAT you would reclaim the VAT on your purchases and charge VAT on your sales, then pay the difference to HMRC each quarter (or get a refund if you paid more VAT than you charged).

If you aren't VAT registered then VAT is just part of the purchase cost, you don't account for it separately anywhere.

Cheers

 

[The Byre]

Any help appreciated, even a link to a good article would help me massively.

https://www.gov.uk/vat-businesses

The bad news is that the UK has the most complex and convoluted tax laws on Planet Earth.

The good news is that VAT is the simplest of all taxes (that I can think of). You merely tot-up all the VAT paid and all the VAT received and once every quarter, go online and enter in what you have to pay or receive if your outgoings were greater than your revenues. Then simply pay the difference online to Her Majesty's taxman.

You are obliged to keep a record of everything for seven years, but they can go back 20 years if they suspect fraud, so 20 years records and receipts would be the prudent thing to do.

 

[JEREMY HAWKE]

The bad news is that the UK has the most complex and convoluted tax laws on Planet Earth.

Another good reason to relocate to the EU .

 

[Mark T Jones]

https://www.gov.uk/vat-businesses

The bad news is that the UK has the most complex and convoluted tax laws on Planet Earth.

The good news is that VAT is the simplest of all taxes (that I can think of). You merely tot-up all the VAT paid and all the VAT received and once every quarter, go online and enter in what you have to pay or receive if your outgoings were greater than your revenues. Then simply pay the difference online to Her Majesty's taxman.

You are obliged to keep a record of everything for seven years, but they can go back 20 years if they suspect fraud, so 20 years records and receipts would be the prudent thing to do.

The OP isn't VAT registered