Starting Online Business

cosyc

Just consider first if you need to be a limited company, you can have a partnership agreement drawn up. It will cost less, no company to set up, no annual returns to make to company house, no corporation tax return. All things you will need to pay an accountant to do.

You will have your own tax returns to do which ever way you go, but as partnership it is simpler so possible to do your own. You probably need to see someone for tax planning advice, to see if it more cost effective to be limited.

You can voluntary register for VAT with turnover less than £60k, there is also a simplied flat rate scheme for small business and you can opt to do a yearly return and pay vat by monthly installments balancing up at the end year.

Vat registered means you can claim back vat on your purchases (depending on type) but have to charge on all goods sold. So for private sales, you can appear cheaper until you go over threshold. Business sales won't be bothered as they in turn will claim vat back on purchaes from you. see https://www.hmrc.gov.uk

Pennywise

cosyc wrote:

Business sales won't be bothered as they in turn will claim vat back on purchaes from you.

VAT registered businesses will tend to buy goods from other VAT registered businesses so that they can claim the VAT back. As an example, if you intend to make a £10 profit on a particular item (figures rounded to nearest pound):-

If you, your supplier and your customer are all VAT registered - Goods cost you £85 plus VAT of £15 equals £100 total price. You reclaim your £15 VAT on your VAT return, so your net cost is £85. You add your £10 profit up to give a net price to your customer of £95 on which you add VAT of £17 (which you pay over on your VAT return) to give a selling price of £112. Your customer reclaims the VAT of £17 on their VAT return, so their net cost is £95.

However, if you're not VAT registered, but your customer is - Goods cost you £100 because you can't reclaim the VAT. You add your £10 profit, so charge your customer £110. As you're not VAT registered, your customer can't claim back any VAT so their cost is £110.

So your customer would pay £15 more if your weren't VAT registered and they were.

So if you aren't VAT registered you may lose a significant amount of potential sales to other VAT registered businesses. You need to think carefully about whether your customers will be domestic/non-VAT registered businesses or VAT registered businesses.

codetown

Pennywise,
your reasoning is correct for good sales. But what do you think about pure online services?

If you have a company selling services with no or very limited goods to buy (except the initial start-up investment) I guess registering VAT will not give you particular benefits and only a lot of additional paperwork.