Question regarding VAT on products

[welshlad1]

Hi guys,

currently in the process of registering for VAT despite being under the threshold. I did this because I am going to be importing from Hong Kong and would need to claim the VAT back on products.

What I was wondering was do I HAVE to charge VAT on all products sold on my website if I'm VAT registered? I'm under the strong impression that I do but I wanted to be certain.
Even if I don't claim the VAT back for a product from my supplier, do I still need to charge VAT on the product?

The other question I have is in regards to selling outside of my website. If someone wanted to buy an iPad from me in cash and I have bought the iPad from my supplier whilst claiming VAT back, do I have to declare the VAT on the iPad that I sell?

Thanks in advance for any help

 

[kulture]

Can I suggest you talk to an accountant before you register. You may be better off not registering. You would certainly be in trouble if you did register with your attitude to sales. If you are VAT registered then you have to charge VAT on ALL sales. Regardless of whether cash or not, or regardless of whether your supplier charged you VAT or not. Unless of course you are selling books or children's clothes.

 

[tree568]

Not quite correct. You charge VAT at the rate applicable for the product. So no VAT for books, for instance, including the postage associated with the books. Same with children's clothes.

If you sell an Ipad for £240 including VAT and postage and packing, then you would need to return £40 of VAT to HMRC (i.e. £200 not VAT price plus VAT at 20% = £240, so the VAT is £40) notwithstanding, if you were selling it within the UK, that from an input tax point of view, postage is a zero rated item for VAT so you couldn't claim input tax back on your postage costs with the Royal Mail.

And yes, if you sell an IPad for cash, then you need to sell it for a VAT inclusive price and return the VAT to the HMRC.

 

[kulture]

Not quite correct. You charge VAT at the rate applicable for the product. So no VAT for books, for instance, including the postage associated with the books. Same with children's clothes.

I know this. That is why I added the qualifier about them at the end. Somehow however as he is importing from Hong Kong, and is going to pay VAT on the import, then I suspect that the goods are subject to VAT.

 

[Paul Kelly ICHYB]

tre568,

"postage is a zero rated item for VAT" - not necesarilly correct. This is one of they greay areas and you may find that the VAT treatment of postage is driven by the main product - if VATable, you charge VAT on postage!

 

[welshlad1]

You would certainly be in trouble if you did register with your attitude to sales.

Care to elaborate on this point?

Specifically, where you found an 'attitude' in my post? I was simply asking a question to make sure that I understood. That's what this forum is here for, right?

In regards to your comment about possibly not registering, maybe you're unaware of the VAT charges I would incur upon importing goods from Hong Kong. If you are aware of the charges then do you really think I'd be better off not registering? Paying £480 as opposed to £400 for an iPad and not being able to claim the VAT back?

 

[Raw Rob]

In regards to your comment about possibly not registering, maybe you're unaware of the VAT charges I would incur upon importing goods from Hong Kong. If you are aware of the charges then do you really think I'd be better off not registering? Paying £480 as opposed to £400 for an iPad and not being able to claim the VAT back?

But then when you sell it for more than £400 you will have to charge more than the £80 VAT you save and pay this back to the government. As others have suggested, either speak to an accountant or do a lot more research yourself on how VAT works.

Rob

 

[kulture]

Where do I begin?

Ok your post seems to imply that you think you can register for vat so you can claim it back to "reduce" the costs of your iPads. Then you seem to imply that you want to sell them for cash and not charge vat on the sale. Sorry, but that is illegal. If you are vat registered then you have to charge vat when you sell iPads.

Now as for talking to an accountant, it is to get them to explain basic maths to you.

If you are vat registered and buy an iPad at 480. Take off the vat you pay 400. You sell at 699. Take off the vat you get 582 (aprox) your profit is 182.
Now if you are not registered for vat then you buy at 480 and sell at 699, your profit is 219.

 

[Jeff FV]

I'm not an accountant or tax advisor - merely someone who has looked into VAT from our own perspective.

As a quick rule of thumb, if your turnover is under the VAT threshold then:

1) If you sell to/service other businesses (who will be VAT registered) you're probably better off being VAT registered as you can claim back any VAT you have to pay out, but your products/services will be no more expensive to who you are selling to as they can claim back the VAT you charge them. You do have the administrative burden of filing a VAT return every 3 months, but this isn't too difficult if you keep good records.

2) If you sell to the public you'll probably better off not being VAT registered as the VAT you can reclaim will be less than the VAT you have to pass on to the taxman.

There are exceptions to the above, but I don't think they'd apply to someone selling iPads.

Jeff

 

[chalkie99]

welshlad1 Unless you are selling mostly to other businesses who are registered for VAT themselves then you are almost certainly going to lose money by registering yourself.

You cannot claim the VAT back on the buying price unless you also pay it on the selling price and if you try and sell for cash to avoid this then the VAT man will be down on you like the proverbial "ton of bricks". They are not the people to mess around with.

 

[welshlad1]

Guys I understand that registering for VAT when under the threshold isn't always beneficial, but I don't know whether I'm being naive or whether no one sees my point here - I am going to import goods from Hong Kong. When I import the goods, I understand that I pay VAT on the product through my supplier, I THEN pay import VAT, I then pay VAT on the products that I sell, thus losing out roughly 20% on my profit margin.

The reason I am registering for VAT is because of the import VAT. If I am not VAT registered I cannot claim back the import VAT.

So, if I'm not registered, I buy an item for £480, pay 20% due to import VAT so get the product for £576.
I then sell for £600 and make £23


If I'm registered, I buy the item for £400 (claiming the £80 back), I then pay 20% import VAT, BUT CLAIM IT BACK.
I then sell for £500 + £100 VAT
I make £100 - because I claimed the import VAT back.

Can someone please correct me if I'm wrong? Because I've spoken to HMRC on several occasions and they have said this is the case.


EDIT:

To those of you saying I'm planning illegal practices, could you please tell me where I said 'I am going to sell an iPad and not declare it to HMRC.' Because I'm pretty confident that I write that.

 

[chalkie99]

EDIT:

To those of you saying I'm planning illegal practices, could you please tell me where I said 'I am going to sell an iPad and not declare it to HMRC.' Because I'm pretty confident that I write that.

You said:

If someone wanted to buy an iPad from me in cash and I have bought the iPad from my supplier whilst claiming VAT back, do I have to declare the VAT on the iPad that I sell?

You cannot swerve the VAT by selling for cash - well, not legally, and it will rebound on you big time when you get found out.

As regards the rest of it, do you somehow think you are going to reclaim import duties if you register for VAT?

It is difficult to see how your mind is working.

 

[Paul Kelly ICHYB]

Your calculations are wrong - in the no registered scenario, you say £480 + vat/£576. In the registered scenario, you say £400. Which is it £400 or £480?


Also, you do not 'get £x back'. You pay the difference between your input and output tax!

To prvent making any costly error, get all yu costs down on a bit of paper and see an accountant!

 

[welshlad1]

As regards the rest of it, do you somehow think you are going to reclaim import duties if you register for VAT?

It is difficult to see how your mind is working.

Are you saying that this is not allowed?

I'm not acting as though I know everything here by the way, I'm here for help and guidance.

 

[welshlad1]

For the record, I'm talking about buying the product less VAT, claiming import VAT back then charging VAT on the products I sell.

Could someone please tell me if this is wrong/not allowed?

 

[kulture]

For the record, I'm talking about buying the product less VAT, claiming import VAT back then charging VAT on the products I sell.

Could someone please tell me if this is wrong/not allowed?

There is a fundamental misconception here. You cannot claim back VAT which you have not paid. So you either buy something from a supplier including VAT and then claim the VAT back or if you get it and for some reason VAT has not been charged, then there is nothing to claim.

Look, go see an accountant. We have all said the same thing. It's about time you realised that you might be wrong.

 

[chalkie99]

You seem to be saying "import VAT" when I think you mean "import duty".

Not the same thing - you cannot reclaim import duty.

 

[welshlad1]

You seem to be saying "import VAT" when I think you mean "import duty".

Not the same thing - you cannot reclaim import duty.

I know I can't, sir.

http://www.hmrc.gov.uk/customs/tax-and-duty.htm#3

I do mean import VAT.

 

[kulture]

You seem to be saying "import VAT" when I think you mean "import duty".

Not the same thing - you cannot reclaim import duty.

You are right, you cannot claim back import duty. However in this one point the op is right. There is no import duty on iPads. In every other point the op has got his maths wrong.

 

[chalkie99]

So, if I'm not registered, I buy an item for £480, pay 20% due to import VAT so get the product for £576.
I then sell for £600 and make £23

Right, so the product costs you £480 + 20% VAT = £576

You sell for £600 and (actually) make £24

If I'm registered, I buy the item for £400 (claiming the £80 back), I then pay 20% import VAT, BUT CLAIM IT BACK.
I then sell for £500 + £100 VAT
I make £100 - because I claimed the import VAT back.

You seem to be claiming back money twice here!

To follow the first part of your example - The product costs you £480 + 20% VAT (which you then claim back so you have paid £480)

You sell for £500 + 20% VAT = £600

Your profit is £500 (net sale) less £480 (net cost) leaving £20.

So, you are £4 worse off by registering for VAT

 

[welshlad1]

I apologise if my maths was shaky, it is normally on form - I was in a bit of a rush when I did the slapdash calculations. But, no excuse.

I've still not had a definitive answer from anyone. Help. Please!?

Just to clarify - I understand the calculations involved and the reason it isn't as profitable to register. I'm still looking for an answer to my question relating to import vat!

 

[kulture]

Read the thread, it has been answered many many times.

 

[welshlad1]

It seems as though you're not here to help but here to hinder and correct everything I say.

I have read through the thread several times and I'm yet to find the answer. This is why I am asking again. Do you really think if I'd spotted the answer I'd still be asking?

We all have to start somewhere and, while I appreciate this stuff may seem easy to yourself, I am just getting to grips with it. If this forum isn't for beginners to learn then tell me now and I'll request my account to be cancelled.

 

[kulture]

You clearly have no understanding of VAT and clearly need to sit down with an accountant who can explain the basics.

A supplier cannot charge you VAT AND "import" VAT. It is either one or another.

There are two possibilities. If your supplier is based in hong kong and you buy direct then he cannot charge you VAT. Instead you pay the VAT on import to the EU.

If however you buy the goods within the UK, as "duty paid" then the supplier has paid the import VAT. The supplier then sells to you and adds VAT.

So you only ever pay VAT once, and you can only claim it back once. This is why it does not pay to get VAT registered.

 

[welshlad1]

To say I have no understanding of VAT is a bit unfair.

But thank you for your informative reply, I appreciate it.

This is my situation:

I am importing from Hong Kong. My supplier is VAT registered.

I am buying directly from him - from what you've said, he can not charge me VAT. Is this right?

The goods are imported therefore liable to UK import tax. From what I've read, I can claim that back. Is this right?

Then of course when selling the product I have to charge VAT.

I apologise if I'm p***ing you off with these questions, I'm p***ing myself off! I just want to make sure I know for certain before doing anything rash.

 

[kulture]

It is best explained by an accountant who can explain it in proper terms. It is down to the place of supply. Your hong kong supplier can sell you goods that are in hnog kong, and you then import them. You pay the import VAT. Your hong kong supplier cannot charge you VAT because this is a UK/EU tax and you purchased the goods outside the EU.

If however your hong kong supplier ships them to the UK then they are the importers and pay the import duty, but then they claim the VAT back, and charge you VAT on your purchase price of goods you purchased in the EU.

 

[welshlad1]

Thank you for clearing a few things up for me.

I will certainly look into booking an accountant for a consultation.

Thank you again.