SB : I'm a sole trader should I register for VAT? 27 February 2007 at 10:47AM edited 30 November -1 at 1:00AM in Small Biz & Charities' MoneySaving 6 replies 13.6K views

Equinut

Hi guys

I run a clothing business and supply to retail. I operate as a sole trader and supply girls and womens clothing.

I'm not currently VAT registered, but all of my retailers are. I am also paying VAT on a number of goods and services which I buy in to my company.

Is there any benefit to me becoming VAT registered? I am wondering if I can claim VAT back on my purchases, and what I gain from being able to add VAT to the invoices I send to retailers - which of course I can't currently do as I'm not registered. Aside from them being able to claim the VAT back on the womens clothing, I am not sure what the gain would be at this point.

My earnings/turnover are comfortably under the compulsory VAT threshold by the way. Any help you can offer would be really appreciated, thanks!

Equinut

Sugar_Coated_Owl

You don't need to register for VAT but you can if you want to. I suppose it may make your business seem more credible. Also it means that you can claim back VAT on business purchases.

Astaroth

Whilst you can reclaim your VAT paid it does mean you have to charge your customers VAT. If your customers are VAT registered then it isnt an issue but if you sell to customers who arent VAT registered then it will increase your selling price/ reduce your profit margin.

Your company status as a sole trader doesnt affect your decision on if to register or not though as mentioned it can make you seem more credible.

WHA

All the above points are valid, however, you could also benefit from the flat rate scheme. In this scheme, you add VAT to your sales invoices, but instead of reclaiming VAT paid to your suppiers, you pay over a reduced amount of the VAT paid by customers. If you are a wholesaler, the rate would be 7% and if you are a manufacturer it would be 8.5%.

So, for example, your sales were £30,000, you would charge VAT at 17.5% (£5,250) (assuming zero rating does not apply here), so your customers pay you £35,250. You then pay over the HM Revenue & Customs either 7% (£2,468) or 8.5% (£2,996) depending upon whether you are wholesaling or manufacturing, so you "make" £2,782 or £2,254 by being VAT registered.

Obviously if the VAT paid to your suppliers is over the £2,782 or £2,254 in this example, you'd be better off without using the flat rate scheme.

At the end of the day, the question is whether or not all your customers (or at least the majority in terms of monetary value of sales) are already VAT registered. If they are, you should register as you would make more profit. If your customers are small like yourselves and not VAT registered, you probably shouldn't register until you have to.

navig8r

My Son had to register for vat because he was on the limit and its the worst thing that happened to him ..He lost a big percentage of his private customers a lot of whom were pensioners because he is 17.5% dearer than his competitors .All being VAT registered does for a business is increase accounting costs .If you want good info on tax matters have a look on the forum of this website : http://www.taxationweb.co.uk/ .

Dave

mrtg0525

Well, the OP is already buying from suppliers that are VAT registered so if she'd apply her profit margin to the ex-VAT price instead of the inclusive price, I can't quite see why she should be suddenly charging the customer 17.5% more.

I do run a small business and I have to be VAT registered as the projected turnover is above the VAT threshold. My accountant recommended that I register for the flat rate scheme which works fine for me as I don't have that much expenditure that's VAT'd anyway. But I've also filled in regular VAT returns and I can't say that it's that much of a hassle.

LittleVoice

As VAT is 0% on children's clothing there would be no increase in your sale price because of VAT and, of course, you haven't paid VAT on manufactured children's clothing you have bought. You would be able to reclaim the VAT you paid on the women's clothing - but you would be charging VAT on selling it to the retailers so you would actually be paying VAT to Customs on the difference.

Your gain would be in being able to reclaim the VAT on other supplies bought for your business. I'm not a VAT specailist so suggest you check that there would be no adjustment to the amount you could reclaim because of the zero rate supplies you make. (I think there would be if you were making exempt supplies but I don't think it matters if you are supplying at 0%. But you should check.)

Try http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal to work through what could be the best method for you.

You also gain interest (or pay less on an overdraft) on the money you hold from suppliers before passing to HM Revenue & Customs.