Backdating VAT registration

nick2491

Good morning all,
For about the last 3 years, I have been running a small business via eBay, initially fixing faulty camera equipment bought through eBay and then sold on at a profit. More recently I have expanded to buying working equipment through Gumtree etc by people who have offered it for sale at below the going rate, and buying spare parts, accessories etc and selling them on at a profit. Some of the spare parts/accessories come from China, some through Nikon direct.
I'm registered with HMRC, national insurance is sorted and income tax is not an issue, as any profit made goes into buying camera equipment for shooting weddings, portraits etc.

I can't get a straight answer from the HMRC exactly, and may have to speak to an accountant, but my question relates to backdating VAT registration. Simply, it is this.

A typical item I would fix, such as a lens, I might buy for £40 from eBay, fix with £1.20 of spare part, and sell on for £65 or thereabouts, hence £24 ish profit, minus about £8 in postage and eBay/paypal fees, leaving about £16 net profit.

At present, if I understand it correctly, if I were to register for VAT tomorrow, although my selling prices (which will not change) should include VAT at the relevant rate, I would only be due to pay the HMRC VAT only on the £16, as this is the net profit. Am I then able to claim back the VAT on the £40 initial purchase price?

As I've been doing this for about 3 years, I am nearing 500 feedback, which after the occasional non-work related transaction is about 450 transactions which might pose this question. The occasional purchase and subsequent sale has been buying a set of equipment for, say, £600 and then selling the various bits on separately for £1000 in total, so the VAT could add up to a significant sum (well, to me anyway!). So if I were to backdate my registration, I'm not entirely clear on whether they'll be owing me, or me owing them!

Has anyone been in a similar situation, or got any informed opinions? Please do tell me if I've misunderstood the way the VAT would work. Any thoughts, observations etc would be most welcome, thank you in advance, Nick

zygurat789

nick2491 wrote: »

Good morning all,
For about the last 3 years, I have been running a small business via eBay, initially fixing faulty camera equipment bought through eBay and then sold on at a profit. More recently I have expanded to buying working equipment through Gumtree etc by people who have offered it for sale at below the going rate, and buying spare parts, accessories etc and selling them on at a profit. Some of the spare parts/accessories come from China, some through Nikon direct.
I'm registered with HMRC, national insurance is sorted and income tax is not an issue, as any profit made goes into buying camera equipment for shooting weddings, portraits etc.

I can't get a straight answer from the HMRC exactly, and may have to speak to an accountant, but my question relates to backdating VAT registration. Simply, it is this.

A typical item I would fix, such as a lens, I might buy for £40 from eBay, fix with £1.20 of spare part, and sell on for £65 or thereabouts, hence £24 ish profit, minus about £8 in postage and eBay/paypal fees, leaving about £16 net profit.

At present, if I understand it correctly, if I were to register for VAT tomorrow, although my selling prices (which will not change) should include VAT at the relevant rate, I would only be due to pay the HMRC VAT only on the £16, as this is the net profit. Am I then able to claim back the VAT on the £40 initial purchase price?

As I've been doing this for about 3 years, I am nearing 500 feedback, which after the occasional non-work related transaction is about 450 transactions which might pose this question. The occasional purchase and subsequent sale has been buying a set of equipment for, say, £600 and then selling the various bits on separately for £1000 in total, so the VAT could add up to a significant sum (well, to me anyway!). So if I were to backdate my registration, I'm not entirely clear on whether they'll be owing me, or me owing them!

Has anyone been in a similar situation, or got any informed opinions? Please do tell me if I've misunderstood the way the VAT would work. Any thoughts, observations etc would be most welcome, thank you in advance, Nick

It sounds as if you dio NOT want to backdate a VAT registration.
It woks like this:-
If your sales are vatable, and yours sound as if they are, you HAVE to charge VAT on the sale. If your invoice price does not change, one sixth of your invoice value is VAT and due to be paid to HMRC.
You may reduce this payment with the VAT which you CAN PROVE that you
have paid. Proof is a purchase invoice with a vat registration number saying either VAT inclusive or the VAT amount. It is dificult to get a VAT invoice after you have paid and some of your suppliers may not be VAT registered - so no VAT invoice.
Looks like you'll owe one sixth of your turnover and will not be able to claim much back.
Simply VAT is a tax on added value ie profit. Still want to register?

Game_Over

I regret to inform you that you do not understand it correctly.

VAT is chargeable on the full sales value, so if you sell for £65 (exc vat) then you need to add £13 vat to the bill which you pay to HMRC.

If £65 includes vat, your sale value is £54.17 plus £10.83 which is collected as VAT and paid to HMRC.

This is known as output VAT

There is also input VAT which is VAT paid on goods & services you procure.
You can reclaim this from HMRC (assuming you have VAT compliant invoices for these amounts)
So if the £40 paid for the broken item includes VAT then that would be £6.67, but chances are the seller is not VAT registered so no VAT is charged, and so no input vat occurs.

There is no vat on Royal Mail postage stamps.

There is also no VAT charged on paypal fees.

The above applies to conventional vat treatment.

You may be permitted to use a simpler method such as the flat rate scheme.

Here you would add 20% VAT to your bill and pay HMRC a fixed percentage of sales (which is less than 20%); the difference represents the estimated amount of input tax you would otherwise typically reclaim.

nick2491

Thank you both, you've made it far clearer than the HMRC did! I'll stay non-registered then, as I'm way way below the threshold for required registration.

Many thanks,

Nick