VAT Question

easylife_2

Very grateful if anyone can give me some advice on VAT.

I am starting a small business selling organic products (in Germany, but for ease lets assume it is in the UK). I have done some research and believe i don't have to charge VAT on the products i sell as my turnover will be under £61,000 per annum (i think it is a similar amount in Germany). Therefore if i can source my products at wholesale price (ie without VAT) and my annual turnover remains below this amount then i can sell my products without VAT- in effect making them 17.5% cheaper (or in the case of Germany 19%)?

Is this right- Can anyone confirm please.

Thanks, Sam

silvercar

You don't charge VAT if you're not VAT registered, so if you keep your turnover below the magic number you won't have to charge VAT. Go a penny over and you'll have to charge it. This is difficult because you can only charge what the market will take so you may lose sales if you suddenly add to your prices.

It also means you can't claim back the VAT you pay on your stock, so the gain is not as much as you first think.

Incidentally, if you are sourcing your products from Germany from a VAT registered company, they would not have to charge you the VAT if you were registered for VAT here. This would aid your cashflow as you wouldn't have to lay out the VAT and then claim it back through your VAT returns. If you are not registering for VAT here then you pay the VAT when you buy stock but don't charge it when you sell.

PoorDave

Are you importing things in either direction, or is the whole business in Germany?

JasonLVC

The VAT registration threshold in Germany is 16,700 euro (only the UK has limit of £60,00o), rest of Europe is pretty tight.

Limits aside, your thoughts and assumptions are correct. Wholesale doesn;t mean no VAT, wholesale to me means that VAT is not included in the price and added later but a VAT registered business can recover that VAT whereas a member of the public canot.

Food stuffs in the UK are sold at zero rate, maning VAT is not charged to the public or retailer and is in the legislation. You don't say what your organic produce is, but note that zero rating is not extended across the whole of Europe, with some countries choosing to charge VAT on food stuffs. I'm not sure on Germany, will have to go away and check that ou. I'll post that update later

May I suggest you visit https://www.taxationweb.co.uk which is a forum and information site for all those things VAT related. You can even register and post a question which hopefully will be answered by professionals.

easylife_2

Thanks for the prompt responses all. To give a little more detail the whole business is located solely in Germany no importing / exporting, and the organic products will be primarily food stuffs.

As i don't expect my turnover to exceed even 16,700 Euros initially i presume from the advice below i don't need to charge VAT (whatever the German rate for foodstuffs is). However, once my turnover exceeds 16,700 do i need to account for VAT retrospectively or is it only on sales over that turnover threshold?

Also i am trying to source the products locally in Germany, primarily from farm shops which produce the produce themselves. As a soon to be registered company (with a turnover less than 16,700 Euros) i suppose i can approach them for a price excluding VAT- or would they as companies with higher turnovers are likely to have to charge VAT even though i intend to sell on? I would prefer not having to claim back the VAT as my German is not particularly good!

Again any advice most appreciated. Thanks

JasonLVC

Once you hit the threshold for registration, you need to inform the local VAT office (normally you do this 30 days before you think you'll hit the limit - ie, if you know you're going to hit the olimit in June, tell them in May).

Any transaction after you receive the VAT registration number will need to be sold with VAT on, provided the goods are vatable items. You do not have to re-invoice all your old clients.

As I posted earlier, if the supplier is VAT registered, then they will HAVE to charge VAT if they sell you vatable items. Ex-VAT is a phrase for retailers with the assumption the buyer is VAT registered and so the buyer can recover the VAT charged, thus the 'ex-vat' figure is the true cost to the buyer. If you are not registered (and your supplier is), you will incur the VAT on your purchases from these farmers. You will not charge VAT on what you sell to the customer, but you will have to absorb the VAT (input tax) you incurred from your suppliers.

I've now checked and foodstuffs are sold at 7% VAT (ie, fruit, vegetables, meat, etc) in germany - so your supplier will have to charge you VAT, if he's registered. You may need to source non-registered suppliers (ie, smaller farms for instance).

Have a look at this european VAT website -

http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/rates/index_en.htm

I trust that all makes sense.

easylife_2

Jason- Thanks for the advice- Very helpful.

Sam

roger56

It would be worth you looking at the Customs and Revenue website relating to UK VAT:
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_001222&propertyType=document