Vat question

[ukbrownie]

I know this could have been asked before but.

I registered as a VAT Exempt sole trader account. Now I would like to import stuff from another EU country like Italy and Malta. Since I am exempt, my suppliers in these countries can't find my VAT number as a valid one so they want to charge me VAT!.

I am confused on how should I price my items. So I pay the Italy VAT when I purchase the items (22% I think) when Items arrive I add my margin but then do I add another 15%? or I add nothing at all since I am exempt? The confusing thing is, the Vat dep told me I don't need to add VAT but an accountant told me that I would need to add.

The accountant told me that if I buy an item from Italy that cost 1 GBP + 22c VAT. And I add a margin of 50% to Item. So the Cost now is 1.83. I need to add the VAT difference. So +15% which is .27c then subtract it with the Italy VAT paid. The 22c. So I need to add 5c. So final price 1.88.

Which is true???

 

[Homshaw]

I didn't think it was possible to register as a VAT Exempt sole trader. If all your supplies are exempt you can not register

Whatever you charge the goods you are suppling are exempt. You can not describe any add on as VAT and your customers can not recover it as VAT

However if you pay 1.22 instead of 1.00 for the goods you will need to recover the cost in your selling price. Forget about VAT and think of the goods costing 1.22

You can not cover the VAT in the UK because the sales are exempt. Whether you can recover them in Italy I am not sure. I tried to recover some French VAT and they wanted a form completed in French. The amount involved was small and not worth the effort

If the amounts are worthwhile I can make two suggestions

1) start making a small amount of taxable supplies and register for VAT. You will then have a number to quote and the EEC supplier will not add VAT. The downside is you will need to make VAT returns

2) If in doubt Tax Cafe do a tax advice service for about £70

 

[spidersong]

First you need to explain what you mean as registered as an 'exempt sole trader'. Do you mean you were granted an exemption from registration because you mainly make zero rated supplies, or an exception from registration because your turnover will be below the deregistration threshold in the coming year?

If you mean you make exempt supplies then this doesn't really make sense, if you only make exempt supplies then you cannot be registered for VAT. If you're not registered for VAT then you cannot charge VAT.

So the first thing is are you actually registered for VAT? i.e. do you have a registration number in the format xxx.xxxx.xx and a certificate of registration, and do you fill in VAT returns. If you do then if you provide this number to your supplier they should be able to zero rate their supplies of goods to you assuming that they are shipping them from Italy to the UK.

If you aren't registered then the supplier will charge you a prce including VAT, and to that you just need to add your margin, with no VAT, because unless you are actually registered for VAT you cannot charge it.

If you are registered and suppliers are having difficulty verifying this, then is this because you're only very recently registered and your details may not have hit the system yet?

 

[ukbrownie]

Thanks for the reply, yes I registered as exempt because the turnover will be low for this year.

They gave me a VAT number with certificate but neither the Maltese nor the Italian suppliers can verify that because I am exempt so they have to charge me VAT.

My problem is wether I would need to add Vat after I add my margin or just add my margin and no more VAT.

 

[spidersong]

I'm still rather confused as to your status. If you were not required to register because your turnover's low then you wouldn't have received a registration number or certificate. There is no such thing as "registering as exempt", you are either exempt from registration, or you are registered, not both.

The possibilities would seem to be:
a) you used to be registered for VAT but when your turnover dropped you deregistered. In which case you can no longer charge VAT and any EC purchases will carry the appropriate EC VAT.

b) You exceeded the threshold for a while but then went back below it and so were only required to be registered for a short period, and your application was processed as 'no longer required' to be registered, in which case you are now deregistered, and cannot charge VAT and will incur EC VAT.


The simplest test is probably to see whether you still need to submit any VAT returns to HMRC, if you don't then you are not registered for VAT, if you do then you are registered for VAT.

What sort of trade is it you do? This may help to identify your status for me.

In whatever case I'm not sure what advice your accountants giving regarding deducting the difference in the EC VAT cost from your selling price. If suppliers are charging you the EC VAT, then unless they refund it to you, it will fall as a cost to you that you cannot recover, so if you then deduct it from your selling price you're just dropping your margin if you need to account for UK VAT as well.

In the example you've given, with a selling price of £1.88 you'd need to pay VAT of 25p to HMRC on the item, meaning you retain £1.63 which gives you a profit of 41p rather than the 61p you wanted.