Using the full SRP when not VAT registered

lucylearner

Hi there,

Can anyone advise on VAT? I'd like to start a small retail business selling to the public. In the first year the turnover will not go over the VAT threshold, but in the second year it might.

The products come with a suggested retail price. Is it ok to charge this full price in both year 1 and year 2 regardless of VAT registration if I do not show VAT as a separate item on receipts?

This would mean in year 1 even though I can't claim back the VAT on my purchase price, I'd make more money per item which would help reduce the expected loss in year 1. In year 2 the customer would pay the same price though part of that would then go to pay VAT.

Much obliged!

Horace

I must admit that I don't know about Suggested Retail Prices.

In your first year you mustn't charge VAT or show VAT on your receipts. Although you are currently under the threshold you can voluntarily register for VAT - you then submit VAT returns and you charge VAT but you can also claim VAT paid on items that you purchase.

In your second year you would have to show the price plus VAT

as an example:

1 skirt £40 (when you are not VAT registered)

or 1 skirt £40 plus VAT = £48

kamzy

If you mean the suggested retail price is £120 and you plan to charge £120 in year 1 with no VAT added on to the invoice and then 100 + 20 VAT =£120 in year 2 then yes.

What you may need to consider is the customers your supplying...if they are businesses who are VAT registered they may ask for a discount in year 1 to cover the £20 they cant claim as input tax. However if they are consumers then I can see no problems at all.

Also remember the suggested retail price is just that suggested, you are free to sell at whatever price you choose.

paddyrg

Yes, that's exactly how it works.

Cost to you £10+VAT per unit = £12
SRP is £30

Year 1) you charge £30, which is £18 profit
Year 2) you charge £30 (£25+VAT), but each unit costs you a tenner as you reclaim the £2 - profit £15

In both cases, your effective markup is +150%, so whilst in year 2 the profit per unit is lower, it has cost you less.