Business Start up NOT VAT REGISTERED - Quoting

pipscot

GlynD wrote: »

You're vat registered so you collect tax for the government. At the end of every quarter you pay that tax to the VAT office. Most companies don't care, even if they are doing a short term investment on the VAT they collect.

That's from experience.

You pay the VAT you collect minus the VAT you are charged!

If you have collected £25K in output VAT from your own customers and you receive a tender from someone who wants to charge you £22K but is not vat registered compared to a tender of £22K +VAT from someone who is registered, you will obviously go for the vat registered business so you can offset the £4,400 worth of input VAT and reduce your VAT bill.

This is one of the reasons why it is better for some businesses to voluntarily register for VAT despite the fact that they are below the turnover threshold.

GlynD

I disagree. Nobody ever forced me to become VAT registered and I dealt with all sorts of companies from streetside to blue chip.

GRM

pipscot wrote: »

If you have collected £25K in output VAT from your own customers and you receive a tender from someone who wants to charge you £22K but is not vat registered compared to a tender of £22K +VAT from someone who is registered, you will obviously go for the vat registered business so you can offset the £4,400 worth of input VAT and reduce your VAT bill.

So what? If the VAT "bill" is reduced by £4400, you've had to pay the VAT registered supplier £4400 more.

If cashflow is key then the non-VAT registered tender can make more sense.

pipscot

GRM wrote: »

So what? If the VAT "bill" is reduced by £4400, you've had to pay the VAT registered supplier £4400 more.

If cashflow is key then the non-VAT registered tender can make more sense.

Actually I agree with that - was not thinking clearly!!

paddyrg

Company A bids £100 + VAT
Company B bids £100 (no VAT)

Client X sees 2 bids at £100 (they are VAT registered themselves),
Client Y sees one at £120, one at £100 (they are not VAT registered.)

However, the supplies cost company A £50 and cost company B £60 (£50+VAT), so company B shows a lower profit.

Company B probably gets client Y's business (by being cheaper), but if client X gives company A the job, company A make more profit than company B.

JimmyTheWig

I would expect your competitors to quote not including vat. That is the price they will ultimately pay and so that is what they will be comparing.
Not quite sure what you mean by discounting your tender, but I'd look at it like this...

If your competitor quotes £22k+vat
then you need to be quoting around £22k (no vat) to be on an even playing field with them.

Assuming cash-flow isn't a problem for them they won't care whether they pay £22k+vat or £22k (no vat). It's the same price to them.
So you may as well become vat registered so you can then claim back the vat on what you buy for the business.

Edis_2

Hello, I do apologize if it is not related to the topic. I think it is though.
Similar situation but rather than providing services my company retails.
We are not VAT registered yet and want to sell B2B.
What is the situation in that case.
We do pay vat when we import stock from the import price.
The question is how is business affected by this when buying from us.
Both VAT registered and not.

For example if something cost you 20£ to import and you paid 4£ of VAT for it straight away being not VAT registered. You then want to sell it to other business for 30£ who want to resell it for 50£ lets say.
So does the buying business need to pay VAT and how much?

a)Buying business is VAT registered
b)Buying business is not VAT registered

Thanks.

chalkie99

Edis wrote: »

For example if something cost you 20£ to import and you paid 4£ of VAT for it straight away being not VAT registered. You then want to sell it to other business for 30£ who want to resell it for 50£ lets say.
So does the buying business need to pay VAT and how much?

a)Buying business is VAT registered
b)Buying business is not VAT registered

In your example:

You pay £20 + VAT = £24 for your stock (assuming your supplier has actually charged you VAT).

You sell to another business for £30 leaving you a profit of £6.

As you are not VAT registered you cannot claim back the £4 you have paid and you cannot charge your customer VAT when you sell.

The product has therefore cost your customer £30 and they sell for £50.

If your "buying business" is NOT VAT registered they sell for £50 and make £20 profit.

If your "buying business" IS VAT registered then they will have to pay to HMRC the VAT on the final sale so, they will either have to increase their sales price to £50 + VAT (= £60) or they will have to pay the VAT out of the £50 sale which means they will actually sell for £41.67 + VAT (=£50) and, consequently, make less profit.

It all depends what businesses you are selling to. If they are mostly VAT registered then you would be better registering yourself now, voluntarily.

In that case, you could claim back the £4 VAT you have paid and charge your customers £30 + VAT. You have then increased your profit from £6 to £10 and the business you sell to won't mind because they will have a VAT invoice they can claim back on so won;t be any worse off.

coupleuk

GRM has explained it correctly.

Cash Flow should be a major consideration for any business, large or small - that's why the big boys dont want to pay their bills for months.

Why would any business want to pay out VAT and have to wait for upto 3 months to get it back.

The OP should include this cash flow benefit when submitting his/her tender - but word it properly or you run the risk of sounding like a cowboy.

I don't think the OP would get away with just submitting the same vat exclusive quote as his competitors as many larger companies DO feel more secure dealing with VAT registered businesses - these businesses have shown that their business has reached a certain level and is less likely to vanish (though in the current climate even that belief is questionable now).

I think the OP should actually calculate what the tender will cost him/her and add in the required profit - then submit that.

I'd be suprised (and a little concerned) if he/she was aware of a competitors tender bid anyway.

Much better to just work out your own prices and submit your quote - if you dont get any work, then you're too expensive - simples.

That might even go on to explain why he/she isnt VAT registered yet (low income) compared to his competitors (more competitive).

antrobus

lukcra wrote: »

Does it make sense to discount my tender by the equivalent of VAT. ...

Does this make sense? and is it common practice to take vat off the quote if not vat registered and dealing with a VAT registered customer?

No, it doesn't make any sense. If you're not registered for VAT, then you should only take account of VAT to the extent that you will have to pay VAT on the expenses incurred in fulfilling the contract, and therefore you will have to remember to include that VAT element in your costings. Your VAT registered comeptitors however will only be incurring the expenses net of VAT and so will have lower costs than you.

As a non-VAT registered business you are therefore operating at a disadvantage when selling B2B.

coupleuk wrote: »

...
Cash Flow should be a major consideration for any business, large or small - that's why the big boys dont want to pay their bills for months. Why would any business want to pay out VAT and have to wait for upto 3 months to get it back. The OP should include this cash flow benefit when submitting his/her tender .....

What cash flow benefit? You can register for VAT and opt for the Cash Accounting scheme as long as your turnover is under £1.35m. Note that the OP may therefore be competing with other businesses who have indeed done so.