Completing the VAT registration form

SomeGeezer

Guys, I wonder if you could help as I think I am having one of those brain freeze moments... You know, when you can't remember how to spell an easy word!?

Anyhow, this how the business model works and the questions on the form I need help with...

Business Model: We are the British distributor for an Italian organisation. They want us to turnover at least 75,000 euros in yr1 (68k GBP). We approach potential customers and if they like the products they place an order and pay us. The italian company then ships us the goods and invoices us 80% of the total order. In other words we make 20% on each order. So, how would one answer the following questions:

Enter an estimate of the value of your taxable supplies in the next 12 months:* £
Do you expect to make any exempt supplies?* Yes No
EU Trade

Do you expect to buy goods from other EU member states in the next 12 months?* Yes No
If Yes, enter the total estimated value: £
Do you expect to sell goods to other EU member states in the next 12 months?* Yes No
If Yes, enter the total estimated value: £

ANy help would be much appreciated. Thanks.

Icetechnik

Hi,

I have the same case at the moment.

Enter an estimate of the value of your taxable supplies in the next 12 months:* £

For your income forecast, I advice you to have a sample list of your prospect (potential clients).

Let say the number of your potential clients in this sample is 1000. If you sell each good at £15 than after have contacted all of your clients (on the sample list) you have a great probability to have : 1000*20%*£15=£3000.

Now, to know if you will certainly reach the income of £75 000, it is normally a simple "règle de trois" :

The number of potential clients you must contact in the next 12 months (with 20% transformation (be sure you have a good marketing plan to maintain this rate)) is : X potential clients = 1000 clients *£75 000/£3000= 25 000 potential clients.

Do you expect to make any exempt supplies?* Yes No
EU Trade

Do you expect to buy goods from other EU member states in the next 12 months?* Yes No
If Yes, enter the total estimated value: £
Do you expect to sell goods to other EU member states in the next 12 months?* Yes No
If Yes, enter the total estimated value: £

It may be yes every where.

JasonLVC

SomeGeezer wrote: »

Guys, I wonder if you could help as I think I am having one of those brain freeze moments... You know, when you can't remember how to spell an easy word!?

Anyhow, this how the business model works and the questions on the form I need help with...

Business Model: We are the British distributor for an Italian organisation. They want us to turnover at least 75,000 euros in yr1 (68k GBP). We approach potential customers and if they like the products they place an order and pay us. The italian company then ships us the goods and invoices us 80% of the total order. In other words we make 20% on each order. So, how would one answer the following questions:

Enter an estimate of the value of your taxable supplies in the next 12 months:*£ Go with 68,000 - it doesn't matter too much, it just helps HMRC categorise you as small/medium or large in terms of VAT and risk to them.

Do you expect to make any exempt supplies?* [STRIKE]Yes[/STRIKE] No - you will be making taxable supplies either at 15%, 17.% or 0%

EU Trade
Do you expect to buy goods from other EU member states in the next 12 months?* Yes [STRIKE]No[/STRIKE] - Becuase you may be buying goods from Italy/elsewhere

If Yes, enter the total estimated value: £ Go with 50,000 - again this is just to judge risk/values


Do you expect to sell goods to other EU member states in the next 12 months?* Yes No - ??? If you are only selling in the UK then the answer is NO, if you are selling to other EU clients then the answer is YES.

If Yes, enter the total estimated value: £ - value of other EU sales.

My responses are in red above, within your original post.

It may be worthwhile you paying for some specialist VAT advice (around £250-£300 for a few hours will be well worth it or ask your accountant if they are suitably experienced).

I say this becuase it can be tricky. Are you a disclosed or undisclosed agent?. Undisclosed agents are those who take part in a supply of goods or services while acting in their own name, but on behalf of a principal (Italy supplier). This means that the third part (the customer) to the transaction is unaware of the involvement of an agent. Whereas a disclosed agent is simply a middleman who matches customers to the supplier andyou get a cut for doing so but the customer is buying from the supplier.

The difference is an undisclosed agent is making the sale and has to account for VAT on the entire cost, not just the commission whereas a disclosed agent only declares VAT on the commission. Have a look here :-

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageContactUs_ShowContent&id=HMCE_CL_000911&propertyType=document

It's not quite as scary as it sounds, should work out VAT neutral BUT you've got to get it right. It sounds like you take title to the goods and so I think ou may be an undisclosed agent. What should happen therefore is you give your Italian supplier your UK VAT number, they will zero rate VAT the sale to you at 80% of true cost. You then calculate VAT at UK VAT rate on their invoice, pay this over on your VAT return and then reclaim it at the same time (in/out). This is known as reverse charge.

You then charge VAT on the selling price of the goods (100% of true cost) charging VAT on top, pay your supplier 80% as agreed, keeping 20% for yourself but with the VAT accounted for on it.

Icetechnik

Hi Jason,

in my case, I will only provide services for the first months to customers, in uk and oversea: also I would like to know if in my case I should me registered now.

I've called the HMRC yesterday and they have said that for starting I can trade without being VAT registered by including the vat in the good/service's price. e.g ; if i sell a good for £100 I will have to diplay the price £115 (without any mention of VAT) to the client and after that to pay £15 to the HMRC.

Also, I would like to know the interest for a business owner to be VAT registered before starting his business.

Many thanks in advance for your help,

Icetechnik

SomeGeezer

JasonLVC wrote: »

My responses are in red above, within your original post.

It may be worthwhile you paying for some specialist VAT advice (around £250-£300 for a few hours will be well worth it or ask your accountant if they are suitably experienced).

I say this becuase it can be tricky. Are you a disclosed or undisclosed agent?. Undisclosed agents are those who take part in a supply of goods or services while acting in their own name, but on behalf of a principal (Italy supplier). This means that the third part (the customer) to the transaction is unaware of the involvement of an agent. Whereas a disclosed agent is simply a middleman who matches customers to the supplier andyou get a cut for doing so but the customer is buying from the supplier.

The difference is an undisclosed agent is making the sale and has to account for VAT on the entire cost, not just the commission whereas a disclosed agent only declares VAT on the commission. Have a look here :-

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageContactUs_ShowContent&id=HMCE_CL_000911&propertyType=document

It's not quite as scary as it sounds, should work out VAT neutral BUT you've got to get it right. It sounds like you take title to the goods and so I think ou may be an undisclosed agent. What should happen therefore is you give your Italian supplier your UK VAT number, they will zero rate VAT the sale to you at 80% of true cost. You then calculate VAT at UK VAT rate on their invoice, pay this over on your VAT return and then reclaim it at the same time (in/out). This is known as reverse charge.

You then charge VAT on the selling price of the goods (100% of true cost) charging VAT on top, pay your supplier 80% as agreed, keeping 20% for yourself but with the VAT accounted for on it.

I can't thank you enough for the above, Jason.

After reading your message, yes, I am the undisclosed agent and after reading the latter part of your message my head is in a little spin, but I understand the gist of it.

Jeez, nothing is ever straight forward is it?

Thank you so much again :T

JasonLVC

Icetechnik wrote: »

Hi Jason,

in my case, I will only provide services for the first months to customers, in uk and oversea: also I would like to know if in my case I should me registered now.

I've called the HMRC yesterday and they have said that for starting I can trade without being VAT registered by including the vat in the good/service's price. e.g ; if i sell a good for £100 I will have to diplay the price £115 (without any mention of VAT) to the client and after that to pay £15 to the HMRC.

Also, I would like to know the interest for a business owner to be VAT registered before starting his business.

Many thanks in advance for your help,

Icetechnik

Depends who you're customers are as to whether you register for VAT.

If you sell B2B, to other traders who are VAT registered then you might as well register now, charge them VAT as they'll be able to reclaim the VAT back from HMRC in the same way if you are VAT registered, you can reclaim the VAT on your expenditure items.

If you sell B2C, to man on the street, they cannot reclaim VAT at all so instead of charging £100 for the product, you'd be charging them £100 + £15 VAt = £115 so you'd be more expensive than a competitor who is not VAT regsitered and who can sell for £100. If your product is unique or comeptition is low, then probably doesn't matter too much.

What HMRC were trying to say is that if you are not VAT registered now and you sell your goods for £100 today, when you do register for VAT next month for example, you then have to charge £100 + £15 VAt so a massive price hike for your customers. If you set the price point at £115 already, then when you do go VAT registered, you can keep the price the same.

Can I ask wat your services are?. There are changes from January 2010 which may make it easier for you to decide if you are trading within the EU and also if you are doing a service outside the EU, these are not subject to UK VAT anyway in most cases.

JasonLVC

SomeGeezer wrote: »

I can't thank you enough for the above, Jason.

After reading your message, yes, I am the undisclosed agent and after reading the latter part of your message my head is in a little spin, but I understand the gist of it.

Jeez, nothing is ever straight forward is it?

Thank you so much again :T

No worries.

You get a UK order in and charge £100 + £15 VAT = £115.00 to the customer (we're assuming you are VAT registered for this example).

You place order with Italy who charge you 80% of UK selling price (so that is £100 x 80% = £80). Italy send you the goods and charge you £80. As you've given Italy your UK VAT number they will not charge you Italian VAT so you get an invoice for £80

You then calculate VAT at 15% on the £80 (£80 X 15% = £12 VAT) and you pay this over to HRMC as output tax (as VAT on a sale, even though it is a purchase!). You then reclaim the same £12 as input tax (VAT on purchases) on the same VAT return so the net effect is neutral.

That deals with the purchase from Italy. You now have the goods in stock and so can invoice the UK customer. You charge them £100 + £15 VAT = £115 in total. Customer pays you £115. You pay HMRC £15 VAT and that leaves you with £100. From that £100 you have had to pay the Italians £80, leaving you with YOUR profit on the deal of £20 - with the VAT treated correctly all the way through to the end.

So you still make £20 on each £100 you sell in this example - VAT hasn't made a difference other than cause you a bit of admin and maybe a sleepless night or two.;)

If you were not VAT registered, the Italians will charge you Italian VAT when they sell to you (VAT is currently 20% in Italy) so you'd end up paying £80 + £16 IVA (VAT in Italian) for the goods so £96 which leaves little margin for you if you are still selling at £100+£15 UK VAT to the UK customer.

Also, all of this is in £ when in reality it'll be in Euros so Italians will invoice in Euros, you have to convert their invoice into Sterling using the day spot rate and this is what you pay oiver to HMRC under the reverse charge bit I explained earlier. Your UK customer can be charged in whatever currency, but the VAT return has to be in Sterling so you may lose out a little in exchange rates along the way.

Icetechnik

Hi Jason,

Thanks for the quick reply. My services are online recruitment (hope from next week) and online trainning (in the next 6 months). I would like to have clients mainly in EU and USA (this last in 6 - 12 months).

In all cases, I appreciate your explainations. It will really help.

SomeGeezer

JasonLVC wrote: »

No worries.

You get a UK order in and charge £100 + £15 VAT = £115.00 to the customer (we're assuming you are VAT registered for this example).

You place order with Italy who charge you 80% of UK selling price (so that is £100 x 80% = £80). Italy send you the goods and charge you £80. As you've given Italy your UK VAT number they will not charge you Italian VAT so you get an invoice for £80

You then calculate VAT at 15% on the £80 (£80 X 15% = £12 VAT) and you pay this over to HRMC as output tax (as VAT on a sale, even though it is a purchase!). You then reclaim the same £12 as input tax (VAT on purchases) on the same VAT return so the net effect is neutral.

That deals with the purchase from Italy. You now have the goods in stock and so can invoice the UK customer. You charge them £100 + £15 VAT = £115 in total. Customer pays you £115. You pay HMRC £15 VAT and that leaves you with £100. From that £100 you have had to pay the Italians £80, leaving you with YOUR profit on the deal of £20 - with the VAT treated correctly all the way through to the end.

So you still make £20 on each £100 you sell in this example - VAT hasn't made a difference other than cause you a bit of admin and maybe a sleepless night or two.;)

If you were not VAT registered, the Italians will charge you Italian VAT when they sell to you (VAT is currently 20% in Italy) so you'd end up paying £80 + £16 IVA (VAT in Italian) for the goods so £96 which leaves little margin for you if you are still selling at £100+£15 UK VAT to the UK customer.

Also, all of this is in £ when in reality it'll be in Euros so Italians will invoice in Euros, you have to convert their invoice into Sterling using the day spot rate and this is what you pay oiver to HMRC under the reverse charge bit I explained earlier. Your UK customer can be charged in whatever currency, but the VAT return has to be in Sterling so you may lose out a little in exchange rates along the way.

Profuse thanks again. It really is appreciated.

mfsb

JasonLVC wrote: »

No worries.

You get a UK order in and charge £100 + £15 VAT = £115.00 to the customer (we're assuming you are VAT registered for this example).

You place order with Italy who charge you 80% of UK selling price (so that is £100 x 80% = £80). Italy send you the goods and charge you £80. As you've given Italy your UK VAT number they will not charge you Italian VAT so you get an invoice for £80

You then calculate VAT at 15% on the £80 (£80 X 15% = £12 VAT) and you pay this over to HRMC as output tax (as VAT on a sale, even though it is a purchase!). You then reclaim the same £12 as input tax (VAT on purchases) on the same VAT return so the net effect is neutral.

That deals with the purchase from Italy. You now have the goods in stock and so can invoice the UK customer. You charge them £100 + £15 VAT = £115 in total. Customer pays you £115. You pay HMRC £15 VAT and that leaves you with £100. From that £100 you have had to pay the Italians £80, leaving you with YOUR profit on the deal of £20 - with the VAT treated correctly all the way through to the end.

So you still make £20 on each £100 you sell in this example - VAT hasn't made a difference other than cause you a bit of admin and maybe a sleepless night or two.;)

If you were not VAT registered, the Italians will charge you Italian VAT when they sell to you (VAT is currently 20% in Italy) so you'd end up paying £80 + £16 IVA (VAT in Italian) for the goods so £96 which leaves little margin for you if you are still selling at £100+£15 UK VAT to the UK customer.

Also, all of this is in £ when in reality it'll be in Euros so Italians will invoice in Euros, you have to convert their invoice into Sterling using the day spot rate and this is what you pay oiver to HMRC under the reverse charge bit I explained earlier. Your UK customer can be charged in whatever currency, but the VAT return has to be in Sterling so you may lose out a little in exchange rates along the way.

Jason can you help me ,I am vat reg and invoiced some machine parts to my uk customers including vat . the parts were shipped direct to the customers from my italian principal and they invoice me in euros of course. How do i fill in box 9 etc as never done before in euros or pounds ? you seem well up on vat help appreciated many thanks :beer:

JasonLVC

There are two transactions here. Customer buys goods from you (stage 1) and then you place order with supplier to supply those goods (stage 2).

Stage 1 involves you charging UK VAT in sterling for whatever the agreed price was plus 15% VAT to your UK customer. As a UK sale, this will go on your VAT return in Box 1 (outputs) and Box 6 (sales exlcuding VAT).

Stage 2 involves you buying goods from Italy in Euros for whatever the agreed price was. The Italian supplier will not charge you VAT as you are UK VAT registered. You have to reverse charge the purchase in your VAt return as follows :-

1. Conversion from euros to pounds is simply a case of taking the spot rate of the day (use something like www.xe/ucc to get the day exchange rate) or it may already be shown on the invoice. Use that conversion ratio to convert euros into pounds (and make a note of the rate on the invoice). For example, an invoice of 313 euros at todays rate of 1.11 = 313euros/1.11 = £281.98 you then add VAT to that so £281.98 * 15% = £42.29 which you pay over and reclaim at the same time on the VAT return = neutral outcome.

Whatever the sterling outcome is, calculate VAT at 15% and put this figure in Box 2 (VAT due from EU), in effect a sale. Make sure the same value is also reclaimed in Box 4 as input tax.

2. For Box 9, you enter the total value of goods and services related to those goods (such as delivery charges) that you received from Italy. Again, you;ve already converted the invoice into Sterling so use Sterlking values, not Euros.

Remember to also include this same amount in your Box 7 total. The Box 7 figure is for your purchases (excluding VAT) for the period including the purchases on which you paid the VAT you put in Box 4, anything you bought that the reverse charge procedure applies to and any amount you put in Box 9.

It is a bit complex but once you get the hang of it it'll be much easier each time thereafter.