VAT advice

my_names_tom

I am looking for a bit on advice on VAT, a subject I do not have much knowledge about.

My friend is self employed and VAT registered selling IT parts and accessories in various ways. I sometimes buy goods from him (with VAT), and then sell them on for a profit.

If I were to buy the goods from him for little money (say 10% of his cost), which would notably cut down the VAT element, would this be considered VAT/tax fraud?

He would buy the goods without VAT, then I would pay VAT on the purchase of goods from him (at a low price), then sell them on myself without needing to charge VAT to the end customer.

Any advice would be useful!

Thanks

Tom

fengirl_2

Not sure if I fully understand your question.
Your friend can sell his goods at whatever price he likes, as long as he charges VAT to his customers and passes this VAT on to HMRC. He would, of course be making a loss for tax purposes and I guess he has every right to do so if he wants.
I dont understand about selling goods to yourself, unless you buy the goodds privately and then sell them to your own limited company. You could not charge VAT to your company as a private individual unless you were VAT registered, but then you would be liable to tax on the profit you make selling to your company and have to charge VAT.

my_names_tom

Let me try and simplify it a bit:

My friend would purchase the goods from a supplier without VAT
I would purchase the goods from him for a lower price, and pay the 15% VAT on the total
I would sell the goods on to people/businesses and not have to pay VAT, as I am not VAT registered.

Basically this means that I can buy goods without VAT and make an extra 15% profit on top of normal margins. It sounds too easy to be true and fraudulent to me!

moneypooh

OK I must be really simple because I'm lost

Mike1901

I think I get you Tom .

Basically he buys the goods, not paying VAT on them, from the supplier. Then he sells them to you. Presumably he'd sell them to you for more than 15% above what he paid for them, or he'd be making a loss, so then in order for you to make profit you would have to charge the people you sell them to 15% more than he paid for the goods originally.

That's the way I understand it anyway.

moneypooh

Surely most suppliers are VAT registered and would charge it to your friend?

Lifeisbutadream

my_names_tom wrote: »

Let me try and simplify it a bit:

My friend would purchase the goods from a supplier without VAT
I would purchase the goods from him for a lower price, and pay the 15% VAT on the total
I would sell the goods on to people/businesses and not have to pay VAT, as I am not VAT registered.

Basically this means that I can buy goods without VAT and make an extra 15% profit on top of normal margins. It sounds too easy to be true and fraudulent to me!

That doesnt make any sense.

Your friend would have to pay VAT on anything he buys you dont just 'not pay VAT' you 'pay VAT' and then claim it back, so he could do that as usual. If the suppliers were not VAT registered, then he would have to mark up a lot more than he paid otherwise he would be paying VAT on something he has been unable to claim back on.

He can then sell on for whatever price he likes, as long as he is paying 15% of the selling price to HMRC.

You can also do whatever you like regarding selling the product, but as you arent VAT registered, you wont be able to claim any VAT paid back.

So I really dont understand how you think you can make a profit, but please do let me know if you really can!

my_names_tom

I just realised I missed an important step, d'oh!

Let me do a worked example:

Step 1

---

My friend who is VAT registered buys a TV for £100 ex. VAT from a supplier (he would claim the VAT back later like normal).

Step 2

---

I purchase the TV from him for 1p, which would include VAT at 15%, but rounding makes it still 1p.

Step 3 (The one I forgot)

---

I purchase a zero VAT rated item from my friend, such as an item of baby clothing, for £99.99

Step 4

---

I sell the TV, which for example could be £130. If I bought the item direct from the supplier it would cost me £115, but in this case I have only paid £100 for it.


Therefore I would have purchased goods at the ex. VAT price, whilst still paying VAT. Is this tax/VAT fraud? Sorry for any confusion!

chalkie99

moneypooh

I'm really confused now but I'm going to keep watching

my_names_tom

chalkie99 - very funny! Care to explain why it is illegal?