Sole Trader becoming VAT registered, any advice?

Sole Trader becoming VAT registered, any advice?

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Lexual

Original Poster:

510 posts

212 months

Friday 17th February 2017
quotequote all

It's looking like I will soon be breaking the £83k turnover threshold and will need to become VAT registered, I'm actually looking to start the process immediately.

It's certainly not my area of expertise but a bit of reading up on it and it seems I just do it online via HMRC and wait for my number. I will find myself an accountant for everything else.

Has anyone else gone through this process and can give any advice to make it as quick and painless as possible?

The other questions I want to ask... when can I actually claim the VAT back on materials from my suppliers? every 3 months on the VAT return?
As an example.. say I've paid £4000 in VAT on materials from my suppliers in a 3 month period, I just put that figure on my VAT return and 10 days later I get £4000 back from HMRC?

I've read that I can claim VAT back from previous years before being registered, is this only for items in the business such as laptops, phones, office rent etc, or does this include the materials I paid VAT on that I've then supplied to my customers?

I will get an accountant, I just want to make sure this is the right move or if staying below the threshold might be better for me, but the vast majority of my clients are VAT registered.

Many thanks.

akirk

5,376 posts

113 months

Friday 17th February 2017
quotequote all
I would get the accountant first...

there are lots of bits to think about around tax - but ultimately you don't always get a choice as to when you register...

-Pete-

2,892 posts

175 months

Friday 17th February 2017
quotequote all
Being VAT registered is not for your benefit, it benefits Mr Taxman.

If you're primarily selling your time, you won't have much to reclaim VAT on. The VAT registered clients won't care either way. For those clients who aren't, are your competitors VAT registered? Your prices will immediately go up 20%.

If you bill clients for anything which they could buy themselves, explain your situation, and ask them to do the purchasing. If they're VAT registered it will save them money, if not they will avoid the possibility of you increasing your rates by 20%.

I know someone with many clients who slowly put their prices up to lose business and stay under the threshold. Less hours, same income.

Eric Mc

121,779 posts

264 months

Friday 17th February 2017
quotequote all
You can reclaim VAT on costs you incurred up to three years BEFORE you registered for VAT.

There are some restrictions.

If you bought materials and goods which were subsequently sold before the date of VAT registration, you cannot claim the VAT back on the cost of those goods.

If you bought materials before the date of VAT registration WHICH ARE STILL IN STOCK at the date of VAT registration, you can reclaim the VAT on those goods. Obviously, as they were still in stock at the date of VAT registration, you will also be charging VAT on the sales price when you sell them as the sale will be going through after you have VAT registered.

If you bought capital items (vans, plant and machinery, office equipment and furniture etc) before you were VAT registered and those items ARE STILL IN USE by the business at the date of VAT registration, you can reclaim the VAT on the cost of those items. Bear in mind, if and when you do sell those capital items - or transfer them out of the business you yourself for personal use, then you must declare VAT on the sale or market value at the date of disposal.

The general rule on reclaiming VAT on costs is that the cost has to have been incurred for the purpose of the trade.
There are some specific areas where the reclaim of VAT is restricted and there are some costs where there is no VAT involved at all - such as train or bus fares, insurance costs, most finance charges etc. So don't try to reclaim VAT on costs that don't have VAT included in them.

You must also retain all purchase invoices, receipts and supporting vouchers in order to substantiate any VAT reclaims.

Eric Mc

121,779 posts

264 months

Friday 17th February 2017
quotequote all
What you "received" is only considered for VAT purposes if you decide to use the "Cash Accounting" basis.

For most businesses it's what you have "billed" that counts.

Lexual

Original Poster:

510 posts

212 months

Friday 17th February 2017
quotequote all

Thanks Ian, I'm a fairly bright chap but I needed that put simply and I get it now..

Pete, I'm selling printed materials and products of which the vast majority will be +VAT, I do very little design or 'time' work that I actually charge for.

The majority of my customers, and the customers I target are medium to large businesses that will be VAT registered, I also work with charities who need to have VAT invoices.

I would say all of my competitors are VAT registered.

As an example..

Currently I buy product A from my trade supplier at £25.00 +VAT - £30 cost

I sell at £50.00 - £20.00 profit - 40% margin

then I get VAT registered:

Buy product A at £25.00 +VAT - £30 cost

sell at £42.00 +VAT (£50.40) - £17.00 profit - c.40% margin +£3.40 VAT reclaim difference - total £20.40 profit.

So if I have this correct, I can make my prices look even more competitive and the total invoice be the same, the customer can reclaim the VAT, while I still maintaining my profit margin?




Mandat

3,879 posts

237 months

Friday 17th February 2017
quotequote all
Lexual said:
Thanks Ian, I'm a fairly bright chap but I needed that put simply and I get it now..

Pete, I'm selling printed materials and products of which the vast majority will be +VAT, I do very little design or 'time' work that I actually charge for.

The majority of my customers, and the customers I target are medium to large businesses that will be VAT registered, I also work with charities who need to have VAT invoices.

I would say all of my competitors are VAT registered.

As an example..

Currently I buy product A from my trade supplier at £25.00 +VAT - £30 cost

I sell at £50.00 - £20.00 profit - 40% margin

then I get VAT registered:

Buy product A at £25.00 +VAT - £30 cost

sell at £42.00 +VAT (£50.40) - £17.00 profit - c.40% margin +£3.40 VAT reclaim difference - total £20.40 profit.

So if I have this correct, I can make my prices look even more competitive and the total invoice be the same, the customer can reclaim the VAT, while I still maintaining my profit margin?
Why would you not continue selling at £50 plus VAT, rather than reducing your price to £42 plus VAT?

To any VAT registered customer, the VAT element will be largely irrelevant, as they will reclaim the VAT anyway.

The Moose

22,821 posts

208 months

Friday 17th February 2017
quotequote all
Lexual said:
Thanks Ian, I'm a fairly bright chap but I needed that put simply and I get it now..

Pete, I'm selling printed materials and products of which the vast majority will be +VAT, I do very little design or 'time' work that I actually charge for.

The majority of my customers, and the customers I target are medium to large businesses that will be VAT registered, I also work with charities who need to have VAT invoices.

I would say all of my competitors are VAT registered.

As an example..

Currently I buy product A from my trade supplier at £25.00 +VAT - £30 cost

I sell at £50.00 - £20.00 profit - 40% margin

then I get VAT registered:

Buy product A at £25.00 +VAT - £30 cost

sell at £42.00 +VAT (£50.40) - £17.00 profit - c.40% margin +£3.40 VAT reclaim difference - total £20.40 profit.

So if I have this correct, I can make my prices look even more competitive and the total invoice be the same, the customer can reclaim the VAT, while I still maintaining my profit margin?
You should be buying at £25 + vat so £30 outlay = £25 cost + £5 due from taxman

You then sell fro £50 + vat so £60 coming in = £50 for you + £10 due to taxman

You owe the tax man £10 and he owes you £5 so you pay him £5.

Before you were VAT registered you would be making £20 on the deal. Now you're making £25 and there's no difference to the majority of your customers (they reclaim the £10 of VAT they paid you from the taxman and they wouldn't have paid this in the first place before you were VAT registered).

Lexual

Original Poster:

510 posts

212 months

Saturday 18th February 2017
quotequote all
The Moose said:
Lexual said:
Thanks Ian, I'm a fairly bright chap but I needed that put simply and I get it now..

Pete, I'm selling printed materials and products of which the vast majority will be +VAT, I do very little design or 'time' work that I actually charge for.

The majority of my customers, and the customers I target are medium to large businesses that will be VAT registered, I also work with charities who need to have VAT invoices.

I would say all of my competitors are VAT registered.

As an example..

Currently I buy product A from my trade supplier at £25.00 +VAT - £30 cost

I sell at £50.00 - £20.00 profit - 40% margin

then I get VAT registered:

Buy product A at £25.00 +VAT - £30 cost

sell at £42.00 +VAT (£50.40) - £17.00 profit - c.40% margin +£3.40 VAT reclaim difference - total £20.40 profit.

So if I have this correct, I can make my prices look even more competitive and the total invoice be the same, the customer can reclaim the VAT, while I still maintaining my profit margin?
You should be buying at £25 + vat so £30 outlay = £25 cost + £5 due from taxman

You then sell fro £50 + vat so £60 coming in = £50 for you + £10 due to taxman

You owe the tax man £10 and he owes you £5 so you pay him £5.

Before you were VAT registered you would be making £20 on the deal. Now you're making £25 and there's no difference to the majority of your customers (they reclaim the £10 of VAT they paid you from the taxman and they wouldn't have paid this in the first place before you were VAT registered).
I completely get this, and for many of my products the price wont change, perhaps it was a bad example but in my head I was thinking of a particular product that I would like to make more competitively priced but keep the same margin. On the whole my prices wont change and so the overall margin should improve.


The Moose

22,821 posts

208 months

Saturday 18th February 2017
quotequote all
Lexual said:
The Moose said:
Lexual said:
Thanks Ian, I'm a fairly bright chap but I needed that put simply and I get it now..

Pete, I'm selling printed materials and products of which the vast majority will be +VAT, I do very little design or 'time' work that I actually charge for.

The majority of my customers, and the customers I target are medium to large businesses that will be VAT registered, I also work with charities who need to have VAT invoices.

I would say all of my competitors are VAT registered.

As an example..

Currently I buy product A from my trade supplier at £25.00 +VAT - £30 cost

I sell at £50.00 - £20.00 profit - 40% margin

then I get VAT registered:

Buy product A at £25.00 +VAT - £30 cost

sell at £42.00 +VAT (£50.40) - £17.00 profit - c.40% margin +£3.40 VAT reclaim difference - total £20.40 profit.

So if I have this correct, I can make my prices look even more competitive and the total invoice be the same, the customer can reclaim the VAT, while I still maintaining my profit margin?
You should be buying at £25 + vat so £30 outlay = £25 cost + £5 due from taxman

You then sell fro £50 + vat so £60 coming in = £50 for you + £10 due to taxman

You owe the tax man £10 and he owes you £5 so you pay him £5.

Before you were VAT registered you would be making £20 on the deal. Now you're making £25 and there's no difference to the majority of your customers (they reclaim the £10 of VAT they paid you from the taxman and they wouldn't have paid this in the first place before you were VAT registered).
I completely get this, and for many of my products the price wont change, perhaps it was a bad example but in my head I was thinking of a particular product that I would like to make more competitively priced but keep the same margin. On the whole my prices wont change and so the overall margin should improve.
Given what you've said, you should end up making more money.