VAT or NOT

kenns

Thinking of starting business with a friend, he thinks it would be best to register for VAT a the start, Im doubtful, can anyone give advice. many thanks

Arkad

Firstly, I am assuming that you do have the choice of registering for VAT (turnover of less than £60'000, I think).

If so, the advantages are:

- It gives you more credibility in customers eyes
- You can claim back VAT from supplies you buy (even better if what you provide is taxed at 0% VAT)

And the disadvantages being:

- Extra work with regards book-keeping, sending VAT returns etc.
- Depending on the line of business you're in, you may price yourself out of the market.

Have a look on the governments revenue and excise website for more details.

Hope this helps.

Arkad

Tallymanjohn

Don't register immediately (this advice was given to me by the tax office!) If you don't hit the £54k turnover limit in the first year then it just means an awful lot of extra work for little return. If your business plan is definitely going to exceed the limit then go ahead, but otherwise don't bother until you need to.

loveandlight

Don't register immediately

I agree.

I did register immediately because I thought

It gives you more credibility in customers eyes

I now wished I'd left it until I reached the required turnover, because now I have

Extra work with regards book-keeping, sending VAT returns etc.

Also, if you do register early and reclaim VAT and then don't reach the required turnover for quite a while, the VAT people have the power to reclaim back the VAT. ( That's what they told me as I'm now considering de-registering for fear that might happen ).

Astaroth

It generally isnt worth registering for VAT up front unless you intend to order massive amounts of stock/ services/ equipment without the intention of selling them all straight away.

Presumably you are going to sell things/ services for more than you pay for them and therefore the VAT you can reclaim from being VAT registered is going to be less than what you have to charge your customers which results in either an increase in price or a reduction in profit.

If you are setting up a business you really should have an accountant and they will be able to look at your plans/ cost of equipment etc and advise if it is going to be benefitial to register now or not.

mikewebs

Hi there

I believe the threshold for compulsory VAT registration is now £61,000.(http://www.hmrc.gov.uk/budget2006/bn41.htm ) I would say you would be better off - especially if you can get your hands on an accounting package like SAGE (pretty easy to use) because this will then complete the VAT return for you!

HTH

inmypocketnottheirs

You also have to consider that if you are buying supplies plus VAT and are selling to VAT registered business and your competitors are VAT registered then you will lose 17.5% margin. This is because you will be unable to pass on the VAT element where as your competitor will, so you will either lose profit or be more expensive. If on the otherhand you are only going to supply the general public then you are best not registering until absolutely neccessary.

Midmac

A question on the same note. If you sold a product to overseas but bought your raw materials here in the uk wouldnt you get a constant VAT refund as exports are exempt from VAT ? or have i got that completely wrong ?

martindow

I agree with most posters that you should only register when you have to unless you are exclusively supplying VAT registered customers when you should register from the start. You need to keep an eye on your turnover as you should register as soon as you have a 12 month period likely to go over the limit - it is not done on financial or accounting years.

Midmac - yes you are right as long as you are selling outside the EC or to companies registered for VAT in their own (EC) countries. I assume this is to encourage exporting. In practice of course you tend to get customers from nearer home.

Midmac

martindow wrote:

Midmac - yes you are right as long as you are selling outside the EC or to companies registered for VAT in their own (EC) countries. I assume this is to encourage exporting. In practice of course you tend to get customers from nearer home.

Cheers martin :beer: Im that little bit smarter now

heppy23

Midmac wrote:

A question on the same note. If you sold a product to overseas but bought your raw materials here in the uk wouldnt you get a constant VAT refund as exports are exempt from VAT ? or have i got that completely wrong ?

Yes you would but it would be unlikely unless you were specifically concentrating on overseas sales.

I would expect you'd attract attention from the VAT people after more than a couple of refunds.