Should i register for VAT?

Discussion in 'Accounts & Finance' started by Ella Business, Oct 9, 2019.

  1. Ella Business

    Ella Business UKBF Contributor Free Member

    57 4
    I have an online shop selling skincare products. I buy from manufacturers and sell on to my customers.

    Would i benefit from registering for VAT even-though right now i am under the threshold?

    Thanks
    Ella
     
    Posted: Oct 9, 2019 By: Ella Business Member since: Jun 29, 2016
    #1
  2. AllUpHere

    AllUpHere UKBF Ace Free Member

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    Only you have the numbers needed to answer that question.
     
    Posted: Oct 9, 2019 By: AllUpHere Member since: Jun 30, 2014
    #2
  3. Mr D

    Mr D UKBF Legend Free Member

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    Its something you ideally need to discuss with your accountant - for many of us the VAT registration means we claim back what we have paid out and pay to HMRC what we collect. Overall HMRC benefits and you increase your prices while not increasing profit. Can you cope with increasing your prices by 20% in order to collect the extra for HMRC or would you be paying the customer payments out of your profits? That's what you have to consider.

    Some businesses its a good idea to register voluntarily. Plenty of others where its a bad idea from what people say.
     
    Posted: Oct 9, 2019 By: Mr D Member since: Feb 12, 2017
    #3
  4. AllUpHere

    AllUpHere UKBF Ace Free Member

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    And please understand that if you register you won't need to add 20% to your current prices to be in exactly the same position (financially).
     
    Posted: Oct 9, 2019 By: AllUpHere Member since: Jun 30, 2014
    #4
  5. Mr D

    Mr D UKBF Legend Free Member

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    True. Its just the simplest method of illustrating the change.
     
    Posted: Oct 9, 2019 By: Mr D Member since: Feb 12, 2017
    #5
  6. paulears

    paulears UKBF Big Shot Full Member

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    If you are selling to non-VAT registered customers, as in most of the public, then your prices to them will be 20% higher than if you stay unregistered. Of course your supplies will carry VAT that you can offset - the problem is that if you buy £100 worth of supplies (ex VAT) then if you are not registered, the cost to you is £120. If you sell them for £220 you made £100.

    If you are registered, you pay £100 (as the £20 VAT is reclaimable), but then sell them for £220, you actually sold them for £183, giving £36 to HMRC - your profit actually being less - £83.

    See the problem? Registering voluntarily when your consumers at the end sale price are not VAT registered costs you money and potentially makes you uncompetitive.
     
    Posted: Oct 9, 2019 By: paulears Member since: Jan 7, 2015
    #6
  7. AllUpHere

    AllUpHere UKBF Ace Free Member

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    No it's not, it's an inaccurate and misleading way of describing it.
     
    Posted: Oct 10, 2019 By: AllUpHere Member since: Jun 30, 2014
    #7
  8. Mr D

    Mr D UKBF Legend Free Member

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    Oh I am sorry, tell us what percentage vat you see on invoices you get.
     
    Posted: Oct 10, 2019 By: Mr D Member since: Feb 12, 2017
    #8
  9. AllUpHere

    AllUpHere UKBF Ace Free Member

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    Your misunderstanding of my point, demonstrates my point perfectly.
     
    Posted: Oct 10, 2019 By: AllUpHere Member since: Jun 30, 2014
    #9
  10. Mr D

    Mr D UKBF Legend Free Member

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    Glad to hear it.
    But you are not going to correct misunderstanding. Just for some reason want to try scoring points for your own ego.
     
    Posted: Oct 10, 2019 By: Mr D Member since: Feb 12, 2017
    #10
  11. STDFR33

    STDFR33 UKBF Big Shot Free Member

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    Unfortunately, I think @AllUpHere is of the misunderstanding that you can do simple calculations.

    As a working example.

    You are currently not VAT registered and buy something for £50 + VAT. You sell it for £100. You have made £100 profit.

    You become VAT registered and still want £40 profit.

    In order to make £40 profit, the price to your customer would be £108.00 (£90 + VAT).

    £100 to £108 is not a 20% increase.

    You have collected £18 of VAT from your customer, reclaimed £10 from your purchases and need to hand over £8 to HMRC - incidentally the same as the increase to your customer.
     
    Posted: Oct 10, 2019 By: STDFR33 Member since: Aug 7, 2016
    #11
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  12. Mr D

    Mr D UKBF Legend Free Member

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    I was under the impression that most people were familiar with invoices that show VAT rate on them. From VAT registered companies.
     
    Posted: Oct 10, 2019 By: Mr D Member since: Feb 12, 2017
    #12
  13. paulears

    paulears UKBF Big Shot Full Member

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    The maths really is NOT difficult and we've shown examples of how dealing with domestic customers means you are more expensive - not by a lot, but enough to make you perhaps uncompetitive. Domestic customers also EXPECT prices to be what they pay. I've never had one who didn't mind a sudden increase of 20% on what was quoted. If Mrs Smith wants my services, I quote £X including VAT, but if Smith Electronics asks for a price they get £X PLUS VAT if they're VAT registered. B2B between two registered businesses means VAT is unimportant. That really is what it's about.

    Run a few of your typical in to out transactions across registered and unregistered formats and see which generates the best margin for you.
     
    Posted: Oct 10, 2019 By: paulears Member since: Jan 7, 2015
    #13
  14. AllUpHere

    AllUpHere UKBF Ace Free Member

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    Oh come on, you spend your entire life on a business forum and you don't know how this works? Your example leads people to misunderstand the issue, as you are pretending to. I dont need to explain, as the relevant information is already in this thread.
     
    Posted: Oct 10, 2019 By: AllUpHere Member since: Jun 30, 2014
    #14
  15. Mr D

    Mr D UKBF Legend Free Member

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    Ah one of those posters.
     
    Posted: Oct 10, 2019 By: Mr D Member since: Feb 12, 2017
    #15
  16. gpietersz

    gpietersz UKBF Regular Full Member

    188 24
    If your customers are all not VAT registered (e.g. consumers) you will be worse off registering.

    If your customers are all VAT registered (or outside the EU ) then you will be better off registering.

    If your customers are a mix of both then you need to do the maths, including estimating the effect on sales of changes to prices paid after the effect of VAT (more for non-VAT registered domestic customers, less for others as VAT registered can reclaim input VAT).
     
    Posted: Oct 10, 2019 By: gpietersz Member since: Sep 10, 2019
    #16
  17. 5leeper

    5leeper UKBF Newcomer Free Member

    14 1
    Agree with gpietersz
    I went over the VAT threashold (not by much) so had to be VAT registered
    It was a right pain in th bum as 80% of customers were not VAT registered and this additional cost put lots of people off.
    So i have learned a lot, de-registered and now keep it under. If i struggle to keep it under (which we are alsmost at) then i will split the business and continue to be under. Once both reach threshold i may lump them together as i will be way over, or again split it...totally depends if we start working the VAT registed business more.
     
    Posted: Oct 11, 2019 By: 5leeper Member since: Aug 9, 2018
    #17
  18. paulears

    paulears UKBF Big Shot Full Member

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    Not sure if splitting the business actually works - two Ltd companies I suppose might, if they are clearly trading it different areas, but I'm sure we had a topic where splitting the business to avoid VAT, was discussed and discounted at a legitimate activity? I'm sure one of the experts will confirm/deny this.
     
    Posted: Oct 11, 2019 By: paulears Member since: Jan 7, 2015
    #18
  19. gpietersz

    gpietersz UKBF Regular Full Member

    188 24
    Get professional advice on that. There are complicated rules about doing things like that and you could get into trouble - I am sure someone here can explain further.
     
    Posted: Oct 11, 2019 By: gpietersz Member since: Sep 10, 2019
    #19
  20. STDFR33

    STDFR33 UKBF Big Shot Free Member

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    What do you mean by split thr business? What would your reason be for doing so?
     
    Posted: Oct 11, 2019 By: STDFR33 Member since: Aug 7, 2016
    #20