VAT - Confused!

Drea

This is probably a really daft question. I know when a business is registered for VAT then they claim back the VAT on business purchases and pay the VAT on sold goods (I think that's right?) but I can't quite get my head around what happens with VAT when I'm not VAT registered.

Wholesalers I assume will charge me VAT on top of their prices, does this get claimed back or is it lost? When I charge my customers should I be adding VAT onto it?

I've been googling but getting myself more and more confused!

System

If you are not VAT registered then you can not charge your customers VAT, neither can you reclaim the VAT that you are charged by your suppliers.

In other words if you are not VAT registered then forget that it exists.

Drea

!!!!!! wrote: »

If you are not VAT registered then you can not charge your customers VAT, neither can you reclaim the VAT that you are charged by your suppliers.

In other words if you are not VAT registered then forget that it exists.

Thanks I was over thinking it I think

bris

You pay the wholesaler £100 +£20 VAT for goods so you pay £120. The wholesaler gives the VAT man £20 so that is his cut in this instance.
You now sell the goods for £200 but because you are not VAT registered the VAT trail ends and you make £80 profit.

If you were VAT registered the goods still cost £120 and you still sell for £200 but this time you can claim the £20 back so costing you £100, but because you sold for £200 you need to give the VAT man his cut on the £200 which is £200 divided by 6 = £33.33.
The VAT man makes more money if you are VAT registered instead of making £80 you only made £66.67.
There are other things you can claim VAT back on to close the gap, such as electricity etc but the VAT man wins in the end.

expressduck

!!!!!! has it spot on! You can't reclaim it and you don't need to worry when you charge. Just forget all about it!