VAT and RRP'S

[indiebiz24]

I run a small independent gift shop and have recently gone VAT registered. Just wondering if it's the done thing to still follow brands RRP's to stay competitive or do businesses tend to mark items up higher than the RRP to cover the VAT? The problem is I don't want to be charging a higher price for items where other retailers stick to the brands RRP but I also don't want to shrink my margins. Any advice would be much appreciated!

 

[Gyumri]

The RRP used to apply to the book trade but I haven't seen it used for anything else. It's a cheeky recommendation if any supplier still marks their product with an RRP.

Ultimately it's up to you to make a profit on what you sell which cannot be achieved by sticking to an RRP suggested by your supplier. I would ask them to remove any pre-printed price as it can cause embarrassment.

 

[Baines Watson]

RRP's typically include VAT if the brand is based in the UK.

The key principle here would be that to stay competitive you need to be priced in line with your competition, not what the brand's RRP suggests. A little market research will be required to establish an appropriate pricing point which works for you both in terms of margins and sales volumes which are both critical in any business. A couple of thoughts below to help you get started:

If the brand's RRP is higher then what the competition is charging then what is the underlying driver for that ? Are they using that as a strategy to generate more sales volumes for example advertising as x% below RRP ? (Sales Volume)

If the competition is pricing at a price higher then RRP then it is more likely due to market demand rather then the VAT aspects, maybe the product is in high demand and therefore people are willing to pay a higher price for it ? (Better Margin)

 

[Paul Kelly ICHYB]

Sell the items for what you want, however, if the items have prices marked, you will look bad if you try selling for more.

 

[Paul Kelly ICHYB]

BTW, you do understand that you do not have to just add 20% to you non VAT prices? You will be offsetting purchase VAT, so you should only really have to increase your price by a smaller sum e.g. 10% (you do the calculation).

 

[indiebiz24]

Thanks for your responses! I think the thing i'm getting confused by is that when I buy stock, i'll get the VAT back but that's at wholesale price and of course I have to pay VAT on each sale at retail which is obviously quite a bit more than at trade... so it seems impossible to fully offset my VAT as I'll always have a bill of the balance to pay. So i'm trying to cover the VAT amount by adding it so the product price but then it works out a bit higher than what the brand sells it for directly and other retailers also follow the brands pricing which is staying competitive but squeezing margins... Hope this all makes sense? VAT is such a pain!

 

[Paul Kelly ICHYB]

It does make sense, but that is what VAT does!

If the item has a RRP but that isn't on the item, non-issue. If it is marked and you choose to charge more, it will end up creating more issues with customersmsayingbthatvtou are ripping them off.

Maybe you need to understand that when you were not VAT registered you were making more/extra profit!

 

[indiebiz24]

The items are not marked, no.... I do understand you make more profit when non VAT registered, I just wanted to get advice on the broader level as to whether retailers bit the bullet and charge more than the brand does, or if they just accept they'll make 20% less profit than they did.

 

[Paul Kelly ICHYB]

You charge what you want to charge!

 

[DontAsk]

accept they'll make 20% less profit than they did.

Again, it's not 20% less profit if you pay VAT on your supplies. Do the sums. Before VAT registration you bough for X and sold for Y. Now you buy for X but can offset the VAT X/6. Sell for Y and pay Y/6 to HMRC. Do the sums.

 

[14Steve14]

We went through this exact same thing when we first registered for VAT. Before registration we were competitive on our pricing and generally were about 10% less than any RRP on certain products and the same as other suppliers where there were no RRP mentioned.

When we registered we added 10% to all prices which was the VAT portion after we could claim back any purchase VAT. We were still competitively priced against our competitors and still below any RRP of those products that had an RRP.

We have since further increased lots of prices over the years, and our only bugbear is what customers perceive to the the cost of postage as that now includes 20% VAT so it looks dearer than our competitors, but again we can now claim back a portion of that as we buy the postage online, rather than at a local post office.