VAT Registration

[accdave]

At the moment we are looking at ways to increase our business. There are 2 issues which I see as helping us to grow. Direct to the public via website or business to business growth.

For the latter I think that would mean voluntary VAT registration as we haven't yet reached the threshold to be compulsary registered.

The downside though would mean on our shop sales the margin would be smaller per sale.

Anybody want to comment/ offer advice if chasing the business market is worth the change ?

[Dave S]

Hi Dave,
I tried B2B some years ago in another life, and found that most Businesses wouldn't use a non VAT Registered Supplier, Could you carry the VAT on your shop sales seeing as it is now 20%, or are you able to increase your prices to include VAT?

[accdave]

Hi Dave,
I tried B2B some years ago in another life, and found that most Businesses wouldn't use a non VAT Registered Supplier, Could you carry the VAT on your shop sales seeing as it is now 20%, or are you able to increase your prices to include VAT?

That's the dilemna, we know we would have to take a hit on the shop sales but it's hard to know how much we could gain as you say because b2b want to deal with VAt registered suppliers.

The other side of it as we found out today are charities, we've had 2 enquries today and the VAT is important to them.

We have with this months increases on garment prices tried to build in a few extra pence to cover the possible hit, but the price increases themselves are a major hit to us

[bms]

The 'hit' isn't as bad as you may think.

If you're not vat registered then, to put some figures on it, you would buy for £100 and sell for £120, making £20 profit
If you are vat registered then you'd buy the same goods for £83.33 (inc vat = £100) and sell for £100 (inc vat = £120), making £16.67 profit
The difference of £3.33 is the vat in your profit.

To make the same £20 profit you would need to increase your selling price to £124 (£103.33 +vat).

So you need to look at the profit you make per annum and consider (a) if you have any movement in pushing up the shop prices to compensate for the 'lost profit to HMRC' and (b) whether your sales would increase to the B2B sector to either offset the lost profit to retail or provide new profit streams to your business.

[accdave]

The 'hit' isn't as bad as you may think.

If you're not vat registered then, to put some figures on it, you would buy for £100 and sell for £120, making £20 profit
If you are vat registered then you'd buy the same goods for £83.33 (inc vat = £100) and sell for £100 (inc vat = £120), making £16.67 profit
The difference of £3.33 is the vat in your profit.

To make the same £20 profit you would need to increase your selling price to £124 (£103.33 +vat).

So you need to look at the profit you make per annum and consider (a) if you have any movement in pushing up the shop prices to compensate for the 'lost profit to HMRC' and (b) whether your sales would increase to the B2B sector to either offset the lost profit to retail or provide new profit streams to your business.

The other thing I thought of that doesn't make the hit as bad is the reclaim of VAT on running costs, electric, phone, advertising etc

[djhutton]

Don't forget , if/when you register for VAT you can claim back VAT that you have already paid on purchases, not sure how far back but I seem to remember getting a nice cheque from HMRC when I registered a business a few years ago. Made quite a nice 'pillow' to cushion the blow

Hopefully that is still the situation, if not I apologise for wrong info.

DJ

[Kaz]

You can only claim back the VAT on purchases to the date you became VAT registered, afaik

[djhutton]

Yes that's what I meant, you can claim back VAT on purchases you have already made up to the date you became registered. After registration you'll also claim them back as input tax, (or offset against output tax)

DJ

[John G]

Up to four years, for purchases, before you have registered - aslong as you have kept records.
http://www.hmrc.gov.uk/vat/start/regist ... before.htm

[accdave]

All fag packets are neatly filed