Help with VAT for fuel merchant

highrisklowreturn

Hi

I've a friend who has set up as a fuel merchant at the side of a yard selling coal and drums of oil. He qualifies for de minimis charging of vat by the wholesalers on his purchases ie he buys under a set figure on each occassion.

However, he was told by one of his dealers' reps that it is not always necessary to surchage each sale to the public at 5% vat as, as in de minimis guidelines when he buys from the wholesaler, a threshold must be reached, either in terms of amount of stock traded or money earnt. Obviously if he can charge 0% vat this would be better for him to get the busy up and running and set prices.

So my question is, is there a set figure of earnings on fuel, consisting of coal, oil and gas, which constitues a threshold which if not crossed means no VAT need be charged?

Thanks in advance

Nicola_Ed

Hi

Are you referring to the VAT regsitration limit? You do not need to register until your sales in the previous 12 months exceed £77,000. The link below may help.

https://www.gov.uk/vat-registration

highrisklowreturn

Hi

Thanks for the reply - my question was really, do vat rebated retail products such as fuels fall under standard vat registration rules - ie that vat is not compulsory until the 77k as quoted?

I thought the 5% had to be charged on all fuel sales, even if the merchant was only making say £10,000 a year.

Does that mean then no vat number is necessary when quoting for purchases as well off other coal and oil merchants?

anniecave

highrisklowreturn wrote: »

Hi

Thanks for the reply - my question was really, do vat rebated retail products such as fuels fall under standard vat registration rules - ie that vat is not compulsory until the 77k as quoted?

I thought the 5% had to be charged on all fuel sales, even if the merchant was only making say £10,000 a year.

Does that mean then no vat number is necessary when quoting for purchases as well off other coal and oil merchants?

I can't see anywhere on the section under fuel and power where it says that any seller MUST register for VAT (but obviously there are general rules about VAT registration based on turnover).

Is your friend registered for VAT? If he is, then he must charge VAT at the correct rate (and quote his VAT registration number on invoices/receipts). If he's not registered for VAT then it would be fraudulent to charge VAT.

Take a look at HMRC Reference:Notice 701/19 - this gives all the details on rates of charging.

But note that VAT can only be charged if the seller is VAT registered.

I don't understand your last line about quoting a VAT number, sorry. But you can't quote a VAT number when selling or buying if you don't have one!

highrisklowreturn

What I mean is, is it ok for him to start ordering supplies without a vat number, what if the supplier, the oil dealer, wants to know it?

JasonLVC

highrisklowreturn wrote: »

What I mean is, is it ok for him to start ordering supplies without a vat number, what if the supplier, the oil dealer, wants to know it?

He can order it, the dealer will charge VAT, your friend will not be able to reclaim the VAT unless he is VAT registered.....so your friends needs to factor in the true price of the fuel from the wholesaler which will be wholesale price plus VAT.

Also, don't confuse VAT with duty. Petrochemicals such as petrol/oil may be subject to a duty (a tax) on top of the VAT depending upon whether your friend is a retailer, wholesaler or something else :-
https://www.gov.uk/fuel-duty

So he may not need to regsiter for VAT if sales are under £7kk per year but may still need to register for a lciense to sell(and declare) duty on fuels.

He may need to register with HMRC in order to sell duitable fuels. It is quite complex to steer through the rules so your friend needs to get advice - spaking to HMRC should be sufficient.

highrisklowreturn

Ok, if he were to charge vat...

Say he bought - to keep it simple - a bottle of gas from wholesaler at £20 +vat, at £21, and he resells it at £30+vat, or £31.50. Can he then reclaim the original vat, giving a profit of £10.50?

Nicola_Ed

Hi

Using your figures the profit is £10. You need to pay to HMRC the 50p VAT being the £1.50 you charged the customer less the £1 you paid to the supplier.

If you do not register for VAT then your profit is £1.50. You charge the cutomer £31.50 and you paid £21 - no VAT charged or claimed.

highrisklowreturn

Nicola_Ed wrote: »

Hi

Using your figures the profit is £10. You need to pay to HMRC the 50p VAT being the £1.50 you charged the customer less the £1 you paid to the supplier.

If you do not register for VAT then your profit is £1.50. You charge the cutomer £31.50 and you paid £21 - no VAT charged or claimed.

Wouldn't the profit be £10.50 in that case?

The other thing is - if for example he trades throughout the year, and unexpectedely gets sales above the threshold 8months into year, would he a) not be obligated to apply to pay vat and b) have to backdate the charging of vat across all his sales, thereby screwing up his profit, sales and margin figures for the preceeding months in the tax year? Wouldn't that be a real mess?

Also, as he intends to deal in oil, he would be looking at buying 2000 litres a time, at £1260 in present money, or £1200 before 5%vat. He would be looking to resell this in batches of 200 litres, ie 10 batches. He wants to make £20 per sale, or £146 per 200 litres. If he were to add the vat, this would make it £153.30. However, subtracting 10% of the original vat would leave him with £147.30 - a much more competitive quote to beat the competition. So what should he charge - the figure of £153.30, or the reduced figure, taking into consideration the reduction following vat reclaim?

This exemplifies perfectlymy first point.

JasonLVC

highrisklowreturn wrote: »

The other thing is - if for example he trades throughout the year, and unexpectedely gets sales above the threshold 8months into year, would he a) not be obligated to apply to pay vat and b) have to backdate the charging of vat across all his sales, thereby screwing up his profit, sales and margin figures for the preceeding months in the tax year? Wouldn't that be a real mess?

Once VAT registered, sales must have VAT applied to them. He can deregister for VAT at any time provided his sales are under £75k per 12 month period, when he deregisters then he no longer has to charge VAT on his sales but will also not be able to reclaim VAT once more on his purchases.

The VAT registration limit is £77k and is a rolling 12 month calculation. That is, at the end of each month you add up what your last 12 months turnover is (Jan12 to Jan13) and so each month, at any time you go over the £77k limit you are obligated to register for VAT from the date you went over the £77k (you actually have 30 days from the date you went over to register) and so all sales from that date are then subject to VAT again.

So if he does the calc each month he will know when he went over and register at the right time, if he doesn't do the calc each month he could go over the limit 4 months ago and find he has to backdate his registration and pay VAt to HMRC on sales he didn't charge VAT on to the customer.

Seriously, your friend needs to speak to a book keeper or accountant as if the margins are such that VAT could screw it up or if he doesn't register for fuel duty, investing in some paid for advice will pay dividends in the future.

highrisklowreturn

Ok, but does he only start paying vat once he goes over 77k, or, say for example he goes over it in month 8 of the tax year, does he need to backdate it to when he started trading?