VAT - Voluntary Registration

[Vicky R]

I am new to this forum and to the world of business ownership! I have had a look through the forum posts and don't think my specific query has been asked before, so here goes...

I am a bit puzzled about voluntary VAT registration and whether it is a good idea or more hassle than it is worth until I hit the compulsary threshold.

I am planning to sell direct to the consumer but also wholesale and so I am considering voluntary registration to allow businesses I work with to claim VAT back from the purchases they make from me. Can they do this anyway if I am not VAT registered and don't show VAT on my invoices? Is it a real barrier to sales for an ickle business not being VAT registered when wishing to work with those that are? Or will it just mean a whole heap of extra work for very little, if any, benefit, when my time is so precious as I try and get my business off the ground?

Any thoughts or advice appreciated.

Many thanks in advance

Vicky

 

[KM-Tiger]

............... to allow businesses I work with to claim VAT back from the purchases they make from me. Can they do this anyway if I am not VAT registered and don't show VAT on my invoices?

No.

Is it a real barrier to sales for an ickle business not being VAT registered when wishing to work with those that are?

If "work with" means "sell to", then in my view the answer is no. A business comparing your prices to others will be looking at the price excluding VAT.

 

[creacom]

Hi Vicky

Voluntary registration isnt complicated and even me who is completely non maths minded can get my head around doing the VAt return now.

So if it is something you decide to do then dont worry too much about the admin side. Also the VAT helpline number is very useful and they do give some friendly and excellent advice.

Hope it helps.

Jacqui

 

[DuaneJackson]

It doesn't sound like they'd be any benefit to registering in your case.

As stated above - when a VAT registered company looks at prices they disregard VAT. So it makes no difference there.

However - when you are selling to cosumers they have to pay the VAT and have no way of claiming it back. So you either up your prices by 17.5% or lose that amount on your profit margin.

Hope that halps!

 

[multilingual]

Voluntary VAT registration will be of benefit if you find that you are buying lots of goods that have VAT included in the price.

Without being able to claim the VAT back you are not working on a level playing field.

It should not affect trade if your customers are registered for VAT as they will not care what the gross price is they will only look at the price net of VAT.

The only negative would be if the majority of your customers cannot reclaim the VAT that you would have to add.

JB

 

[Vicky R]

DuaneJackson wrote: However - when you are selling to cosumers they have to pay the VAT and have no way of claiming it back. So you either up your prices by 17.5% or lose that amount on your profit margin.

Now I think I am being a tad slow :? as I don't think I have understood this properly. I have already calculated my retail prices and profit margin but not considered VAT in that. If I was to plump for voluntary registration, I would have to pay the VAT man 17.5% of this retail price, thus eating into my profit. Is that what you meant?

Multilingual wrote: Voluntary VAT registration will be of benefit if you find that you are buying lots of goods that have VAT included in the price.

Yup, I'd say virtually everything I buy stock-wise has VAT included in the price. So if I have understood everything correctly, I need to weigh up whether the amount of VAT I could claim back balanced out with the amount I had to pay to see if it's worth the bother until I reach the threshold (like the optimism in that?!) where there is no choice in the matter?

Thanks for all the help guys

 

[DuaneJackson]

LEts say you have an item you buy for £5 (inc VAT)

Yopu currently sell that for £10 making a profit of £5

Then you register for VAT

You buy the same item for £5 inc vat - you can now claim the VAT back so the real price to you is £4.26.

As you are VAT registered you have to charge VAT on everythig you sell. IF you still want to sell it for £10 then you actually have to charge £8.51 + VAT.

8.51 (selling price) - 4.25 (buying price) = £4.26 profit.

Not a huge differnce of an item you sell for a tenner, but it soon adds up

 

[Vicky R]

Ahhh, I think the lightbulb has just flickered into life! :idea: :idea: :idea:

Thanks for explaining it so simply! I'd have to do some maths to be sure, but I think I would probably end up paying more VAT than I could claim back, so it's perhaps not the smartest of moves.

As a matter of interest, are you 'allowed' to claim back more VAT than you pay or does it always have to be the same or tipped in the favour of the VAT man?

Thanks again for the explanation.

Vicky

 

[creacom]

If you have paid more VAT than you have invoiced your clients for then yes believe it or not Mr VAT man will refund you the difference if you are registered.

Jacqui

 

[Sharon]

Vicky,

I've just registered voluntarily, I'm doing everything online, returns, Direct Debit payments/repayments... it's all be very easy to do.

I've registered voluntarily, even though I have yet to start trading, as I've got (relatively) large set-up/starting costs, all of which I'm paying VAT on, even down to Quick Formations £3.50! I'm fortunately able to claim all that back.

The difference being all my clients will be VAT registered too, and able to claim it back when they buy from me.

You just have to do the maths, but don't forget all those start-up costs... for my first two VAT returns, Mr VAT is having to pay me, hopefully, after that, I'll be having to pay him - I won't mind, having to pay him means the business is doing well!

 

[The Instructor]

So, even tho the VAT to be added to an invoice is 15%....if VAT registered....
How much are we to pay back as a % to the VAT man, on the voluntary scheme, someone told me its only a small % age, is this rubbish......?

Great Thread....I'm looking into this myself also

 

[mjp]

So this is very interesting.

I used to work for an IT reseller who were VAT registered.

I would buy an item for £160 + VAT

And sell it for £183 + VAT

And make a gross profit of £23 + VAT

Now as a soletrader that isn’t VAT registered

I would but they item for £184 (£160 + 15%)

And sell it for: £210.45 (£183 + 15%)

And make a gross profit of: £26.45 which is exactly the same as above.

The problems I know I am going to come across is that my quote to the customer would say their buy price (my sales price) is: £210.45. BUT my old company is going to send a quote saying: £183 + VAT

Now if the company I am selling to is VAT registered and it is for internal use they can claim the VAT back? So the price they will actually pay from my old company is: £183 but from me the price would stay at £210.45?

From this point of view doesn’t it make more sense to become voluntarily VAT registered as most of my customers will be VAT registered too?

Also, am I allowed as a non-VAT registered company to quote showing EX-VAT and INC-VAT figures? Or can I legally only put INC-VAT figures on the quote/invoice?

Thanks (and sorry for thread hijacking)

 

[colin_mckellar]

This is of interest to me.

My son runs a car valeting company working mainly with members of the public and doesn't earn enough to register for VAT.

However he has now moved into the commercial sector with valeting vans and lorries.

He is wanting to set up a separate company for the commercial side of things and buy another van in addition to the car valeting van.

Could he voluntarily register for VAT for the commercial company and charge VAT on his invoices but be able to claim the VAT back on the van and leave the car valeting company not VATable?

 

[Zeno]

The Instructor - http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm

MJP - If the majority of your customers are VAT registered then it will likely be beneficial for you to register. Also consider the FRS scheme above.

Colin - Basically, no. HMRC will argue that it is the same business. Many accountants give bad advice on this subject - register two companies with different shareholders etc but the end result is the same. If the businesses are artificially split then keeping up this pretence becomes unworkable.

 

[David Griffiths]

So this is very interesting.

I used to work for an IT reseller who were VAT registered.

I would buy an item for £160 + VAT And sell it for £183 + VAT And make a gross profit of £23 + VAT

Now as a soletrader that isn’t VAT registered

I would but they item for £184 (£160 + 15%) And sell it for: £210.45 (£183 + 15%) And make a gross profit of: £26.45 which is exactly the same as above.

No it isn't. Your gross profit is £183-160 = £23, because you have to pay the VAT over. And you might find it difficult to get the full price sellling to a registered trader because they could get it at the VAT exclusive price from a registered supplier.

Also, am I allowed as a non-VAT registered company to quote showing EX-VAT and INC-VAT figures? Or can I legally only put INC-VAT figures on the quote/invoice?

Thanks (and sorry for thread hijacking)

Yes, you can show both figures on your quotations. The danger with showing VAT for non-registered people is that some of them will want to pay cash so that you can "knock off the VAT" Not a good idea!

 

[RAL]

Also, am I allowed as a non-VAT registered company to quote showing EX-VAT and INC-VAT figures? Or can I legally only put INC-VAT figures on the quote/invoice?

Thanks (and sorry for thread hijacking)

If you are not vat register then you can not charge or show vat on your invoice. You just show normal price without any breakdown.

 

[David Griffiths]

Oops! RAL is quite right - I missed the point that you wanted to do this as a Non registered trader. :redface:

 

[Wow-Factor]

Hi, Just thought Id add something to this post for anyone, who like me finds it in a search even thought its an old thread!

The HMRC describes voluntary regisration and lots more here: (oops not yet allowed to post urls- so search hmrc voluntary vat registration)

And - they have a very useful section on prof-forma invoices makes it clear that before goods are supplied you must mark your invoice 'this is not a vat invoice' - ie proforma - before supply. You must then supply a VAT invoice after the customer received the goods.

Hope this is useful - it was to me!