Voluntary VAT registration

TatyDanny

Hi Guys,
I wonder if anyone would be able to give me some advise? I am a small start-up company, we are creating doggy jumpers. We are having our wool imported from Peru and are subject to VAT (Peru has a free trading agreement with the EU so no need to pay duty TAX). As we will be importing quite a lot of yarn the costs will climb rapidly. My question is should I voluntary register for VAT (I say voluntary as we are not yet making 85k when registration is mandatory) and have tax relief on that. I am aware that once we register we have to charge the customer VAT too. So I need to weigh it out, if it is worth to do it now and collect the 20% VAT from the customer from the start so that we won't have to increase our prices in the future to make up for the VAT or cut into profits if we keep the prices the same (as I will not be able to really increase the prices especially once we have our established customer base) and get used to paying the VAT? Any suggestions will be much appreciated. Many thanks, Tatyana

Pennywise

If you can increase your selling prices by 20% and you're selling to domestic non VAT registered customers, just do it anyway, whether you're VAT registered or not. Then you'll get to keep the entire 20% rather than pay it over to HMRC.

Unless you're planning to make large losses in the early years or have huge set-up, capital or equipment costs on which you can claim back VAT paid, VAT registration will never be beneficial when your customers aren't VAT registered businesses themselves.

I'd suggest you do the number crunching with your business plan figures for sales and purchases/expenses to see how the VAT would impact it.

bris

Being VAT registered is never a good idea unless you are selling VAT exempt goods.


You can claim the VAT back on the yarn yes, but you also need to give the VAT man his share from every jumper you sell. He always wins in this game, that's the whole point, it's a tax and a very lucrative one at that.