I currently import clothes from the US and sell in the UK. I'm not yet VAT registered, but plan to apply within the next few weeks.
This is my problem:

At the moment I buy Item A for £150, sell for £165. = £11 profit...simple
When I become VAT registered, I'll be buying Item A for £150, then what price do I have to sell it at?

Can I not keep my prices the same? If I still sold Item A for £165, I'd be losing money
The price breakdown as I see it: £140.43 + VAT = £165
The VAT in this case is £24.57. I will have to pay this to HMRC.

Therefore the total loss is £24.57+ (£150-£140.43) = £34.14

If this is true, I don't see the point in being a VAT registered importer. Am I missing something? PLEASE HELP!

i beleive you only need to be VAT registered if your income is above a certian amount, are you doing this for a living or just as a little extra income? if you are required to be VAT registered then you most certianly you will need to increase your prces by a fair bit than 165

im not really an expert on this sort of thig to be honest im sure some more senior members will be along to help you

Originally Posted by abc123

I
At the moment I buy Item A for £150, sell for £165. = £11 profit...simple
!

:eek: shouldn't that be £15 profit , if you ask DSC he's the vat expert .

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You don't need to register for VAT until your turnover in the previous 12 months exceeds £61,000.

You should probably (NB see 2nd to last paragraph) find that when you import the item, VAT is charged on it (ie if you pay £150, that's £127.66 for the item itself & £22.34 VAT). At the moment you pay this £22.34 tax & it's lost money, but when you sell the item on for £165, the whole £165 is yours to keep. Therefore profit (I agree with Boro here!) is £15.

If you become VAT registered, you will pay the £150 as before, but can then reclaim £22.34 making the net cost to you of bringing the goods into the country £127.66. If you then however sell it on for £165, you only keep £140.43 of that, the remaining £24.57 goes to the tax man.

The net effect of registering is that you will lost out on £24.57-£22.34=£2.23 on each sale, which is effectively the 17.5% on your mark up of £15.

Based only on that you're better off not registering, although bear in mind by registering you can also reclaim input VAT on other items you purchase, such as overheads (which will presumably be minimal assuming you're doing this from home), but also more importantly any bigger items that you purchase (of course ONLY for business use ;-) such as new computer equipment etc.

Your post does sound suspiciously as though you are not being charged VAT when the items enter the country however (which is not uncommon, especially if the deliveries you receive are fairly small and inconspicuous!). If this is the case, then although technically you should declare these to customs & pay over the VAT, you're inevitably not going to, so your entire profit margin at the moment is effectively made by defrauding HMRC (good work!).

Either way, I'd recommend NOT registering for VAT unless you have to, or unless you're selling large volumes of items to corporate buyers (ie not Jo Bloggs on eBay), as companies would be able to reclaim again any output VAT you charge them, so they're indifferent).