The Wholesale Forums

[andy]

I have recently started selling on these forums and a few members told me they would not purchase from me because I am not VAT registered.

They said that as I couldnt invoice them for VAT they wouldn't be able to claim it back.

Is there any way around this? I make no where near £61,000 at the moment so being VAT registered is not a legal obligation.

I have had alot of interest in bulk purchases in hundreds, but I cannot proceed with them beacuse of this VAT problem.

If anyone could point out a soloution it would be very helpful.




Also When I sell goods I incoporate the vat I was charged when purchasing them, do VAT registered companies charge VAT on the price they sell them for. If so am I correct in thinking for a non vat registered person I am the cheaper option, by a small margin (assuming unit price is the same.)

[Anthony]

Unless you become VAT registered (not worth it unless you are up with the threshold) you cannot get around it. It's the law unfortunately.

Maybe you should take the orders that you do have straight to your supplier who is presumably VAT registered? Make a deal with them and take a cut from the bulk orders that you can offer them with the customers you have stating they will only deal with a supplier that is VAT registered. Just a thought..

[andy]

Yeh I have been mulling that one over in my think tank all day, the problem is, both my customer and supplier will think hello we can cut andy out of this and carry on dealing between outrselves.

It will not be possible to maintain anonimity in that scenario.

I can trust my supplier not to make direct offers to my customer but I cant say my customer wont bypass me.

I could tell my supplier I can solicit more sales, and tell my customer I can haggle better prices.

I might give it a go tho, my be may only option.

[Anthony]

To avoid being cut out of the deal sign an agreement with your customers and your supplier. The appropriate agreement for a transaction of this nature would be an NCND. It provides you with the agreement of Non Disclosure and Non Circumvention. (Means you cannot be cut out by either your supplier, or customer.)

You may also wish to sign a commissions agreement. This would now be venturing into broker territory.

[greedyboy]

If you feel you business will benefit from being VAT registered, you can still register before reaching the threshold (even the 1st day of trading). If you are offering Business to Business this can be a real benefit, in fact it is essential if you want to be competitive/make money.

Also you get the VAT customers pay sitting in your account earning interest for up to 3 months If you are dealing with end users or small traders who are not VAT registered it may not be worth it and may make your overall prices uncompetitive.

It's swings and roundabouts.

[worktillyoudie]

Do the sums.

Take into account VAT on all future sales, if you make more money with your new potential customers, get registered!

[greedyboy]

Not sure I agree with you there.

If you buy something at £100 + VAT and sell it for £150 the calculations are:

VAT REGISTERED: The item cost you £100

NOT VAT REGISTERED: The item cost you £117.50

If VAT registered, when you sell the item for £150 inc VAT to a non VAT Registered buyer you make 127.65 - 100 = £27.65

If you are not VAT registered, when you sell the item for £150 to a non VAT Registered buyer you make 150 - 117.50 = £32.50. So you can actually make £4.85 more which is more money or you can lower your price to be more competitive with VAT registered sellers.

[andy]

So its cheaper for a non vat registered person to purchase from another non vat registered person because the vat added is only the initial payed on cost, the markup is therefore vat free.

So then why is it more expensive for a vat registered company to purchase from another non vat registered person. I know they are unable to claim the VAT back but they still have to add vat it when they sell it. could they not just not charge the VAT on their sale? or could they just place vat on their markup?

[greedyboy]

Originally Posted by andy

So its cheaper for a non vat registered person to purchase from another non vat registered person because the vat added is only the initial payed on cost, the markup is therefore vat free.

That is correct. You can not claim the VAT back on the purchase so it becomes part of your cost. When you sell the item you can not obviously charge VAT even though you have paid VAT (unless you are VAT registered of course).

Originally Posted by andy

So then why is it more expensive for a vat registered company to purchase from another non vat registered person. I know they are unable to claim the VAT back but they still have to add vat it when they sell it. could they not just not charge the VAT on their sale? or could they just place vat on their markup?

Because all of the VAT charged goes to he VAT man and not me

If I buy something from you (I presume you are not VAT registered) for £100 and I wish to make £50, I have to charge £150.00 + VAT (176.25).

Or I can sell the item I purchased for £150 including VAT (127.65 + VAT) but my profit is only £27.65... almost half. Therefore being VAT registered there is little or no benefit me purchasing from a non registered seller.

It seems complicated bit it isn't

Basically, if you are VAT registered you ignore all the VAT amounts, they are just numbers!. You simply buy for £100 + VAT and sell for £150 + VAT for example, but you just ignore the VAT part (buy for £100 and sell for £150).

Finally who gets the VAT? The lovely VAT man of course... but not all of it Your VAT liabilities are selling VAT less buying VAT in simple terms. So using the example above I would owe the VAT man £26.25 - £17.50 = £8.75. But it has not cost me a penny or lost any money.... and I have that £8.75 sitting in my account earning interest for upto 3 months until I pay my VAT.

Last thing, you hear people/businesses moaning they have to pay the VAT bill, but the bigger your VAT bill the more profit you have made! And you have received the money you owe when you sold the goods. So it's not like it is coming out of your own pocket.

Long winded, I know! Maybe I will write an article for the site when I get a few hours spare.

[Cold Gaming]

Would love an article to be honest, need to understand this and how it will benefit my business at the moment...

I could register for VAT as we will be hitting that threshold very soon, infact i will have to, but i need to fully understand it.