Is it worth being VAT Registered

stateoftheunion

A friend and I open a shop 6 month ago and before we opened we registered for VAT.




I don't believe that it is of benefit to us, as are only bring in £8000 per quarter and have had to just pay VAT of £600 for our second quarter.
Is there any advantage of us being registered for VAT. We buy an item for £100 from our supplier and are charged 20% and then have to charge our customer 20%.
If we where not VAT registered then we would have £80 profit not £64 because of the vat being paid.
Thanks for any help.

w211

Possibly not. If you were able to reduce your prices, because you're not VAT registered, maybe you could sell more?

martindow

If you are selling to individuals it is usually not advised to register for VAT until your turnover obliges you to. 32 000 a year is well below the VAT threshold and you were maybe ill advised to register in the first place. Did an accountant advise registering at the outset?

On the other hand if you think the business might grow fairly rapidly it would not be long before you have no choice whether to be VAT registered.

It is may be worth spending half an hour with a suitably experienced accountant to see whether it is worthwhile deregistering or to stay as you are.

AbbieCadabra

i'm probably missing something in that equation/your wording (it's been a long week), but you if weren't vat registered you'd still be paying vat in the price to your supplier, but not charging it to your customer nor be able to claim it back.

as already said, if selling to non-vat customers, usually best not to register until you have to.

Pennywise

AbbieCadabra wrote: »

if selling to non-vat customers, usually best not to register until you have to.

Unless you spent a lot of money for stock and equipment when you started out and/or have high VATable overheads - then the cash flow advantage of reclaiming the VAT charged to you may make it worthwhile registering before you have to.

Rhenser

stateoftheunion wrote: »

A friend and I open a shop 6 month ago and before we opened we registered for VAT.




I don't believe that it is of benefit to us, as are only bring in £8000 per quarter and have had to just pay VAT of £600 for our second quarter.
Is there any advantage of us being registered for VAT. We buy an item for £100 from our supplier and are charged 20% and then have to charge our customer 20%.
If we where not VAT registered then we would have £80 profit not £64 because of the vat being paid.
Thanks for any help.

I don't understand your calculation, sorry.

From your post I understand you currently pay £100 +VAT for an item = £120

If you were not VAT registered, to sell this and make £80 profit means you are selling the item for £200

As a VAT registered business, if you sell the same item for the same price of £200, that would mean £166.67 excluding VAT.
But as the VAT you paid on the item would be deducted as input tax, you only actually pay £100 for the item, so profit would be £66.67, not £64.

Obviously there are other things you use in your business that you may be able to deduct as input VAT, e.g. energy usage (which is charged at 20% for non-residential use), telephone, etc.
Maybe the rent also is subject to VAT?

You need to look at the whole business, not just the sale of one item.

If the numbers still don't make sense, ask the accountant who advised you to voluntarily register for VAT from the outset, to explain the reasoning behind their original advice. You did consult an accountant before you registered didn't you? :eek: