Start Up Advice

[Mark Tindale]

Hi

I'm looking for some advice. We are a new start up and we have set up as a ltd company.

I expect our first year turnover to be between 70k-100k, we are not yet set up for vat.

Am I right in thinking we don't have to do this until we hit the vat threshold of 85k?

I know very little about vat at the moment. On 100k turnover, we would have purchases of roughly 15k plus machine, rent and utility costs of 30k.

At the moment we sell 100% to the public via ebay, amazon and our website. So I'm thinking vat for us will be especially bad and affect our sales?

Is there any easy way to calculate what we should expect to pay.

Thanks in advance

Mark moto-cnc.com

 

[WaveJumper]

Hi

I'm looking for some advice. We are a new start up and we have set up as a ltd company.

I expect our first year turnover to be between 70k-100k, we are not yet set up for vat.

Am I right in thinking we don't have to do this until we hit the vat threshold of 85k?

Yes

I know very little about vat at the moment. On 100k turnover, we would have purchases of roughly 15k plus machine, rent and utility costs of 30k.

Do these figures 15k & 30k include VAT either way if you are not VAT registered you will not be able to claim back

At the moment we sell 100% to the public via ebay, amazon and our website. So I'm thinking vat for us will be especially bad and affect our sales?

If you don't think about it now how is VAT then going to hit your business in 12 months time then, either your prices are going up or are you planning to absorb the 20% out your profit, risky

Is there any easy way to calculate what we should expect to pay.

Yes in simple terms you would be collecting 20% on all your sales for the VAT man and off setting part of this payment with the VAT you have paid on all your expenses

Thanks in advance

Be a good idea to go talk to an accountant and get proper sound advice before you set off on the journey

Mark moto-cnc.com

Comments above

 

[Scalloway]

See also my reply here

https://www.ukbusinessforums.co.uk/threads/start-up-vat-help.397725/

 

[Mr D]

I would suggest you don't want to stay just over the VAT threshold. Not a great place to be. Push higher as soon as you can.

The VAT the buyer pays is 20%, 1/6th of the selling price (its ex vat price plus 20%). You can put your prices up by whatever percentage - just if you want to pay the VAT out of your profits its going to hurt.
So for example you may have stuff for sale at £10 then register for VAT and start selling the item at £11. A 10% increase.
1/6th of that £11 would be VAT so would show on your turnover as £9.17. The other 1/6th being the VAT which most software will account for separately.

 

[MOIC]

Concentrate on maximizing your turnover, without worrying about when you reach the VAT threshold and the impact it may have on your business.

At such time when you reach the VAT threshold, follow the procedure for charging and claiming back.

A business which looks at keeping within the VAT threshold of under 85k turnover in order to avoid registering for VAT, has their eye off the ball.

That’s not how to run and optimize a business.

 

[Mr D]

It can be a good idea to start off with VAT already factored into pricing. Then when registering for VAT its no major change in price as already factored in.

Before anyone screams that the prices are then too high - ask yourself how many businesses are VAT registered and still trading.

 

[Socio South West]

Concentrate on maximizing your turnover........

...... but not at the expense of profitability

 

[MOIC]

...... but not at the expense of profitability

Obviously.

It has to be taken in context of the OP worrying about if/when he will reach the VAT threshold.

 

[Mitch3473]

Concentrate on maximizing your turnover, without worrying about when you reach the VAT threshold and the impact it may have on your business.

At such time when you reach the VAT threshold, follow the procedure for charging and claiming back.

A business which looks at keeping within the VAT threshold of under 85k turnover in order to avoid registering for VAT, has their eye off the ball.

That’s not how to run and optimize a business.

Sound advice, can vouch for that through experience.
When we finally decided to go VAT registered ( I'd been in a similar situation many years ago with a previous business ) I allowed for a 20% loss of customers and, as before, it didn't happen.....all was well with the world

 

[Gordon - Commercial Finance]

You are competing directly (especially on ebay) with Chinese manufacturers who can make what you're making very cheap indeed, if you are happy to wait a few weeks. I know this because I've bought a tonne of CNC bike parts over the years for all of my bikes, and I'm always annoyed if I've not planned ahead well enough that I can wait the three weeks to get the part super cheap.

You needn't worry therefore about being competitive on price, because you're not and you never will be. If I buy risers for a Hayabusa from you for £100, rather than spending a lot less and waiting for delivery from China, then adding 20% to that isn't going to make a difference.

Concentrate on the reason why people will buy from you - made in Britain, next day delivery (or 3-5 days, whatever). You can't compete on price, so don't try.

 

[TripleHost]

You are competing directly (especially on ebay) with Chinese manufacturers who can make what you're making very cheap indeed, if you are happy to wait a few weeks. I know this because I've bought a tonne of CNC bike parts over the years for all of my bikes, and I'm always annoyed if I've not planned ahead well enough that I can wait the three weeks to get the part super cheap.

You needn't worry therefore about being competitive on price, because you're not and you never will be. If I buy risers for a Hayabusa from you for £100, rather than spending a lot less and waiting for delivery from China, then adding 20% to that isn't going to make a difference.

Concentrate on the reason why people will buy from you - made in Britain, next day delivery (or 3-5 days, whatever). You can't compete on price, so don't try.

As the above post says, if you're selling a good quality British made product there is a growing market out there. Using eBay is good starting point, just make sure you follow their tips. Ensure you enable the fast and free delivery option, many people look out for that now and it influences their decision.

In terms of VAT the last thing you want to do is wait until its too late, keep a close eye on the ball and pick the optimum time for your business. Rather than strike straight away with price hikes, consider if it would be a better option to start with VAT incorporated or a gradual addition to the pricing would make more sense.

Look at what similar competitors (British) are charging for the product and try to stay competitive with them, develop your USP as this could be an influencer in your pricing.

 

[Mark T Jones]

Obviously.

It has to be taken in context of the OP worrying about if/when he will reach the VAT threshold.

Sadly, not obvious to a lot of business-owners..

 

[Caroline_Pegden]

Also, beyond thinking about the impact in terms of price, being VAT-registered can be a good way to establish your credibility as your company as it shows your future clients that you've been in business for a while, or you're doing well!

Best of luck with your new business,

Caroline

 

[Mark Tindale]

Comments above

 

[james_77]

With a name like moto-cnc, it sounds like you will be manufacturing? Therefore being VAT registered will be helpful, as you will be able to claim back all of the VAT on your materials., and any new machinery (or commercial vehicles) you buy. If its CNC work, maybe you dont need to be the cheapest, but strive to be the best. I wouldn't sub a CNC job out to China.

I have a growing business where I need to acquire equipment etc, VAT can work to your advantage in this stage. It is allowing me to buy new stuff at a reduced price. The only other way to do this is buy second hand.

 

[Mark Tindale]

Thanks for the advice everyone. It seems as though going vat registered is not as scary as I first thought.


@Gordon - Commercial Finance When I speak about competitors, I'm really talking about British, German and American companies.

I cannot compete with the Chinese price wise, but quality wise is where I gain an advantage.

As it happens, the Chinese make very few of my products, this is probably down to them not being big sellers. But Ironically they do make 1 identical item, which they sell at less than a 3rd of the price. As it happens, this is my biggest seller.

My initial thoughts are to keep on pushing the brand, and when the time comes for vat, we can possibly push the prices up 10% and absorb the rest ourselves.

At the moment we are 10%-15% less than our direct competitors, so once we are more established, this may be a viable option.

 

[MOIC]

You don't have to be cheaper than your competitors for your type of product. You just need to offer a better product with a better service.

Keep us all posted when you reach your first million turnover!

 

[Flankaaa]

I think that nobody from Western world can compete with Chinese prices of goods. However, your strength should be quality of a product. It is good that customers have option to choose quality over price. You could incorporate this fact into your marketing strategy and communicate it with customers

 

[Chris Ashdown]

You don't have to be cheaper than your competitors for your type of product. You just need to offer a better product with a better service.

Keep us all posted when you reach your first million turnover!

In reality you just have to have a perceived better product and service, , you can produce a equally product in all ways, but my marketing you can have a higher perceived value

My suggestion is get a professional to write all your promotional material