VAT online retail question - startup

[minimad99]

Hi all,

First post so please be gentle

I have a UK based Ltd company started in last 6 months, not reg for VAT currently.
We have a Shopify shop and supply goods from a small premises, we supply clay and Pottery supplies/equipment to professional and amateur artists.

We buy our stock from the UK inc VAT as the suppliers are very large businesses, am I correct in thinking that our online store prices should be showed as excluding VAT?

Due to the fine margins and limited wholesale prices in this sector for a small player like us, our prices have to reflect others who include VAT.
This is fine until we cross the £90k VAT threshhold and then will take the 20% hit to profits as we wouldn't be able to out price the bigger boys.

I'd be interested to hear people's thoughts on this siutation, our accountant advised to not reg for VAT which seems correct given us being a startup. Would you agree?

Thanks

Neil

 

[Newchodge]

Your prices should not mention VAT unless you are registered. If you state £100 excluding VAT I would expect the invoice to show £100 + £20 VAT = £120.

 

[Galactus2024]

Hi Minimad99
If you are not registered for VAT your sales invoices should show the total price you wish to charge with no mention of VAT.
So if you purchase an item from a VAT registered business and you pay say £15.00 + VAT £3.00 total £18.00 and wish to
make a 2% profit you will charge your customer £18.36 which gives you the 2% profit.
If you registered for VAT you would charge £15.30 + VAT £3.06 total £18.36 and you would pay to HMRC £3.06 less £3.00 = £0.06
leaving you a profit of £0.30 on the transaction. The advantage of registering for VAT is that VAT on your expenses are claimable against
the VAT you owe. So put another way any capital items, computers, furniture, printers and any company costs including telephones, electricity/heating, rent, vehicle costs etc are recoverable against the VAT you charge on your sales therefore making you cost of items cheaper
to the business. Obviously the down side to this is that you have to summit a VAT return every quarter and pay the amount you owe to HMRC
or occasionally receive money from HMRC when you spend on capital items or large expense bills.

 

[DontAsk]

As has been said many times, the hot on profit is rarely as much as 20%

 

[minimad99]

Hi Minimad99
If you are not registered for VAT your sales invoices should show the total price you wish to charge with no mention of VAT.
So if you purchase an item from a VAT registered business and you pay say £15.00 + VAT £3.00 total £18.00 and wish to
make a 2% profit you will charge your customer £18.36 which gives you the 2% profit.
If you registered for VAT you would charge £15.30 + VAT £3.06 total £18.36 and you would pay to HMRC £3.06 less £3.00 = £0.06
leaving you a profit of £0.30 on the transaction. The advantage of registering for VAT is that VAT on your expenses are claimable against
the VAT you owe. So put another way any capital items, computers, furniture, printers and any company costs including telephones, electricity/heating, rent, vehicle costs etc are recoverable against the VAT you charge on your sales therefore making you cost of items cheaper
to the business. Obviously the down side to this is that you have to summit a VAT return every quarter and pay the amount you owe to HMRC
or occasionally receive money from HMRC when you spend on capital items or large expense bills.

Thank you for the clear explanation, your first example is exactly what we are doing currently so glad ive understood it.
We have B2B and B2C so Ive updated our site to make it clear we are not VAT registered for business customers as it appears rather complicated on Shopify to get exc vat displayed anywhere!
Thanks @Galactus2024

 

[Newchodge]

Thank you for the clear explanation, your first example is exactly what we are doing currently so glad ive understood it.
We have B2B and B2C so Ive updated our site to make it clear we are not VAT registered for business customers as it appears rather complicated on Shopify to get exc vat displayed anywhere!
Thanks @Galactus2024

If you are not VAT registered you must not state excluding VAT.

 

[minimad99]

If you are not VAT registered you must not state excluding VAT.

Sorry, must not state exc Vat or is that a typo?

 

[Newchodge]

Sorry, must not state exc Vat or is that a typo?

Please look at my post number 2. If you state excluding VAT any business customer will expect you to charge VAT on top of the quoted price. You are not VAT registered so VAT is completely irrelevant and must not be mentioned at all.

 

[minimad99]

Please look at my post number 2. If you state excluding VAT any business customer will expect you to charge VAT on top of the quoted price. You are not VAT registered so VAT is completely irrelevant and must not be mentioned at all.

Oh I see, I just want to avoid assumptions. Looks like "total price" will be best then. Thank you

 

[Newchodge]

Oh I see, I just want to avoid assumptions. Looks like "total price" will be best then. Thank you

"Price" is more than adequate.