Sole Trader VAT Registration

[moo-tique]

Hi,

I assume that as a sole trader you need to register for VAT to reclaim VAT on purchases?

Thanks,

Dan

 

[Paul_Rosser]

Yes you do.

 

[moo-tique]

Thanks.

As we are way below the current VAT threshold, might be worth registering on a voluntary basis in that case.

 

[Paul_Rosser]

Depends if your customers are VAT registered as if not and your goods/services attract VAT then you will either have to increase your prices or swallow the VAT cost yourself.

 

[moo-tique]

We sell direct to customers and assume that the majority will be unregistered for VAT. However, if we register for VAT we understand that we will need to include this on our invoices. We would be looking to reclaim VAT on the stock we purchase.

 

[Paul_Rosser]

If your customers won't mind paying the extra 20% on VAT then all good.

 

[JonathanSEO]

We sell direct to customers and assume that the majority will be unregistered for VAT. However, if we register for VAT we understand that we will need to include this on our invoices. We would be looking to reclaim VAT on the stock we purchase.

Sounds like your customers are getting a raw deal paying 20% more.

What are the benefits of it if you're below the threshold?

 

[moo-tique]

Sounds like your customers are getting a raw deal paying 20% more.

What are the benefits of it if you're below the threshold?

VAT will be absorbed into the product price, so the customer will already be paying this if that makes sense? Obviously, if we do decide to register, we will indicate the VAT amount on each customer invoice.

As for the benefits, we purchase stock from our supplier who charges VAT. I assume we would be in a position whereby we could claim this back?

 

[Paul_Rosser]

You would be able to claim the VAT on stock back, but if will be covering the VAT your customers are paying then you will be worse off.

For example you buy £1000 worth of stock and get charged VAT at 20% so you pay £1200.

You then sell this with a 50% markup to your customers, so £1500 but you have to also include VAT in that so you actually charge them £1250 + £250 VAT making the sale price the same £1500.

Whilst you can then recover the £200 VAT you paid, you have to pay the HMRC £250 as thats the VAT you have collected, leaving you £50 out of pocket.

The only way it would work in your favour is if you can charge your customers the £1500 + VAT as they would then pay £1800. You would collect £300 in VAT offset that against the £200 you paid and leave you having to pay the HMRC £100.

But your customers would be £300 worse off.

 

[youronlinestuffcom]

how do you go about de registering for VAT? do you have to pay back all the VAT you have claimed?

 

[kevin.doran]

Paul's right, you registering for VAT would seem to make little sense except making HMRC that bit better off.

 

[Swisaw]

Don't register for VAT unless your gross earning reaches the current VAT threshold. It is not in your advantage in any situation. You could register temporarily if you bought an expensive asset like a vehicle to get back VAT on the new asset. After that cancel it. But you have to that very carefully otherwise it could cost you more than what you get back.

 

[Scalloway]

how do you go about de registering for VAT? do you have to pay back all the VAT you have claimed?

Info on how to dergister for VAT is here

http://www.hmrc.gov.uk/vat/managing/change/cancel.htm

You will have to repay VAT reclaimed on stock and assets on hand at the date of deregistration if the VAT is over £1,000.

 

[SBlundell]

Don't register for VAT unless your gross earning reaches the current VAT threshold. It is not in your advantage in any situation.

Not necessarily - if you are supplying exclusively to VAT registered businesses who don't care whether they pay you VAT or not it can often work out to your favour. Every case should be weighed on individual circumstances. However, on the face of it this would be correct in this situation.

You could register temporarily if you bought an expensive asset like a vehicle to get back VAT on the new asset. After that cancel it. But you have to that very carefully otherwise it could cost you more than what you get back.

Not really, see Scalloway's post:

You will have to repay VAT reclaimed on stock and assets on hand at the date of deregistration if the VAT is over £1,000.

=> You'd have to pay over the VAT of the vehicle's value anyway as soon as you de-registered - which is unlikely to have changed significantly. Plus of course bear in mind VAT is often not recoverable on vehicles anyway (except vans).