Sole Trader business... taxes?
Discussion
Hi
Firstly, apologies for my complete naivety.
I have set up a business (e-commerce) as a sideline for having full time employment. The majority of products I will sell are VAT free which makes things nice and simple ( I think?).
1 product I sell (fertiliser) has VAT on it, and as my customers are VAT registered, they will want to claim it back. To do this, I believe I will need to be VAT registered, so I can also claim it back from my purchase?
I'm not at the scale where an accountant is justifiable/affordable, so looking to do the book keeping myself.
Any hints or tips? Is there anything I can claim back on/other taxes I will need to pay?
Thanks in advance.
Firstly, apologies for my complete naivety.
I have set up a business (e-commerce) as a sideline for having full time employment. The majority of products I will sell are VAT free which makes things nice and simple ( I think?).
1 product I sell (fertiliser) has VAT on it, and as my customers are VAT registered, they will want to claim it back. To do this, I believe I will need to be VAT registered, so I can also claim it back from my purchase?
I'm not at the scale where an accountant is justifiable/affordable, so looking to do the book keeping myself.
Any hints or tips? Is there anything I can claim back on/other taxes I will need to pay?
Thanks in advance.
Having an accountant on hand is ALWAYS justifiable when you are up and running as a business - no matter how small. The fact that you felt the need to ask a VAT related question on a public forum indicates that you would find the services of an accountant very worthwhile.
The question you have asked essentially is -
how do I handle all the taxes I will be liable for as a sole trader - which is a big question and will require a detailed answer.
Simple version of the answer is -
Income Tax (through Self Assessment)
Class 2 NI
Class 4 NI
VAT registration is not compulsory unless your sales total over a given 12 month period exceeds £83,000.
Registration for PAYE would only be necessary if you took on staff.
The question you have asked essentially is -
how do I handle all the taxes I will be liable for as a sole trader - which is a big question and will require a detailed answer.
Simple version of the answer is -
Income Tax (through Self Assessment)
Class 2 NI
Class 4 NI
VAT registration is not compulsory unless your sales total over a given 12 month period exceeds £83,000.
Registration for PAYE would only be necessary if you took on staff.
Ah right OK.
The one product could be a big earner, am I right in thinking a vat registered customer would not buy a vat registered product off a non vat registered company because they could not claim the vat back?
How would being vat registered affect the sale of zero rated vat product?
Thank you
The one product could be a big earner, am I right in thinking a vat registered customer would not buy a vat registered product off a non vat registered company because they could not claim the vat back?
How would being vat registered affect the sale of zero rated vat product?
Thank you
H6CJF said:
They wouldn't have to claim it back because they wouldn't be paying it in the first place if you aren't vat registered! (Because you won't be charging it)
Maybe not but it sounds like he will be paying VAT on it when he buys it in. If he then has to sell it with no VAT on it I suspect he'll find it very hard to make a profit because the ex VAT sale price will be the market price and he won't be able to claim the VAT back on his purchases.Buying something that is Vatable & then selling it without VAT is almost never viable.
AC123 said:
Ah right OK.
The one product could be a big earner, am I right in thinking a vat registered customer would not buy a vat registered product off a non vat registered company because they could not claim the vat back?
How would being vat registered affect the sale of zero rated vat product?
Thank you
In theory you would just sell to your customer at the nett of VAT price, so for example, if it's a product that sells at £20 inc VAT, you would sell it at £16.67 no VAT, which is the nett price the customer would pay once they'd claimed back their VAT if VAT was charged on it..The one product could be a big earner, am I right in thinking a vat registered customer would not buy a vat registered product off a non vat registered company because they could not claim the vat back?
How would being vat registered affect the sale of zero rated vat product?
Thank you
Your snag is that you have to buy your product INCLUDING VAT, so you would effectively lose that VAT in your profit. In the example above, suppose it costs you £10 plus VAT, that's £12. If you're VAT registered, you claim back the £2 VAT, but as you are not, you can't. So your gross profit, if you're VAT registered would be £6.67, or £4.67 if you're not VAT registered.
I suppose it depends how much value there will be in the VAT chargeable product as to whether that additional amount of profit is worth having. There's a trade off in terms of profitability versus the additional time taken to administer the VAT.
Hi
That's it - I'll have to pay VAT on the product so would end up losing money if I can't claim it back. All my customers will be VAT registered. I don't think there will be many orders to begin with so work shouldn't be too bad (famous last words).
I would also have to do self assessment and what I pay depends on the profitability from what I can see and the information from Eric.
If I drove to see a customer, do I charge 45p/mile to the business as fuel charge?
That's it - I'll have to pay VAT on the product so would end up losing money if I can't claim it back. All my customers will be VAT registered. I don't think there will be many orders to begin with so work shouldn't be too bad (famous last words).
I would also have to do self assessment and what I pay depends on the profitability from what I can see and the information from Eric.
If I drove to see a customer, do I charge 45p/mile to the business as fuel charge?
As slo mo says, you have to factor in the hassle factor of having to complete VAT returns even if your turnover is well below the compulsory turner threshold.
A business CAN voluntarily register for VAT even if its sales figures are well below the compulsory threshold.
And don't forget, once you register for VAT, whatever you sell you MUST charge the applicable VAT on the sales price.
So, if you register for VAT because you plan on selling widgets to a batch of VAT registered customers but you find that you are actually selling more grommets to non-VAT registered customers, if you are VAT registered, you will have to charge VAT on all your sales of both widgets and grommets - or anything else you might find yourself selling.
A business CAN voluntarily register for VAT even if its sales figures are well below the compulsory threshold.
And don't forget, once you register for VAT, whatever you sell you MUST charge the applicable VAT on the sales price.
So, if you register for VAT because you plan on selling widgets to a batch of VAT registered customers but you find that you are actually selling more grommets to non-VAT registered customers, if you are VAT registered, you will have to charge VAT on all your sales of both widgets and grommets - or anything else you might find yourself selling.
Eric Mc said:
As slo mo says, you have to factor in the hassle factor of having to complete VAT returns even if your turnover is well below the compulsory turner threshold.
A business CAN voluntarily register for VAT even if its sales figures are well below the compulsory threshold.
And don't forget, once you register for VAT, whatever you sell you MUST charge the applicable VAT on the sales price.
So, if you register for VAT because you plan on selling widgets to a batch of VAT registered customers but you find that you are actually selling more grommets to non-VAT registered customers, if you are VAT registered, you will have to charge VAT on all your sales of both widgets and grommets - or anything else you might find yourself selling.
Ok, thanks Eric.A business CAN voluntarily register for VAT even if its sales figures are well below the compulsory threshold.
And don't forget, once you register for VAT, whatever you sell you MUST charge the applicable VAT on the sales price.
So, if you register for VAT because you plan on selling widgets to a batch of VAT registered customers but you find that you are actually selling more grommets to non-VAT registered customers, if you are VAT registered, you will have to charge VAT on all your sales of both widgets and grommets - or anything else you might find yourself selling.
Is that the case even if the other items being sold are zero rated?
Sorry be such a pain!
AC123 said:
Eric Mc said:
As slo mo says, you have to factor in the hassle factor of having to complete VAT returns even if your turnover is well below the compulsory turner threshold.
A business CAN voluntarily register for VAT even if its sales figures are well below the compulsory threshold.
And don't forget, once you register for VAT, whatever you sell you MUST charge the applicable VAT on the sales price.
So, if you register for VAT because you plan on selling widgets to a batch of VAT registered customers but you find that you are actually selling more grommets to non-VAT registered customers, if you are VAT registered, you will have to charge VAT on all your sales of both widgets and grommets - or anything else you might find yourself selling.
Ok, thanks Eric.A business CAN voluntarily register for VAT even if its sales figures are well below the compulsory threshold.
And don't forget, once you register for VAT, whatever you sell you MUST charge the applicable VAT on the sales price.
So, if you register for VAT because you plan on selling widgets to a batch of VAT registered customers but you find that you are actually selling more grommets to non-VAT registered customers, if you are VAT registered, you will have to charge VAT on all your sales of both widgets and grommets - or anything else you might find yourself selling.
Is that the case even if the other items being sold are zero rated?
Sorry be such a pain!
"Zero Rate" is a rate of VAT. The VAT just happens to be calculated at "Nil" percent.
"Exempt" and "Beyond the Scope" are not the same as "!Zero Rate".
Get an accountant.
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