Quote:
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).
Quote:
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.