whats the deal with vat?

newfoundglory

I want to start building computers, servers and fault tolerant mass-storage devices and selling them. I believe I can build custom high quality systems at competitive prices.

Today, I was spec'ing up some systems and pricing - but i'm stuck on one thing - the vat.

How on earth does this work? I dont really want to make a limited company unless its successful and wondered what the deal was with vat if i'm only doing this to get started? I will obviously want to claim back the vat i pay for parts as the vat bill is going to a lot.....

fengirl_2

You dont have to be a limited company to register for VAT - sole traders can do also (and indeed are required to if their turnover exceeds £64k). You can register voluntarily and reclaim VAT on your purchases, although you will also need to charge VAT to your customers.

motorguy

newfoundglory wrote: »

I want to start building computers, servers and fault tolerant mass-storage devices and selling them. I believe I can build custom high quality systems at competitive prices.

Today, I was spec'ing up some systems and pricing - but i'm stuck on one thing - the vat.

How on earth does this work? I dont really want to make a limited company unless its successful and wondered what the deal was with vat if i'm only doing this to get started? I will obviously want to claim back the vat i pay for parts as the vat bill is going to a lot.....

Done this one myself, only we bought and sold volumes of laptops too. VAT is a disaster area as it effectively takes 17.5% of your profit, when you're registered, yet you have to register if you are going to be above £64000 in any 12 month period - which you will be if you're shifting any sort of volume at all - we turned over £120,000 in our first year.

Say you buy the parts for £250+VAT, you then reclaim the VAT, thus parts cost you £250.

You build it and decide you can get £399 for it, as thats undercutting PC world by £50. In actual fact you've sold it for £339.57+VAT, of which the VAT man will take his £60.47. Leaving you £90 gross profit in which to cover your profit AND your warranty.

You might not think the warranty is a problem, but joe public will come back to you with EVERYTHING that goes wrong with it, AND will expect you to replace the parts that are faulty. Its up to you to chase up when you bought the part, when you bought it, run their online test on the part, return it, pay for postage, then wait for it coming back - in the meantime, you'll have had to put a new replacement part in to the customers machine.

Also, make sure your warranty terms are clear - that its return to base - a lot of people will expect you to come and fix it at their house.

Also dont assume that joe public will pay extra for a 'quality' machine - so you will end up competing on the most part on price. Some people will but very few. Most people won't care that the dvd writer is a SONY or that the HD is Samsung, they just want a cheap price and a years warranty.

Also, we found 95% of our customers bought laptops.

You might find that Dell can sell you built machines for less than you can actually build them. They usually have some crazy deal on - I bought a 1.5TB, 2.2Ghz C2D machine with 2gb RAM, dvd ROM, DVD Writer, Windows Vista and a years on site warranty and 4% quidco cashback for £316. Have a look at www.dmxdimension.com and search on www.hotukdeals.com for dell. Dell usually have a base unit on offer for less than £190 complete. Laptops are often available for less than £270 for a decent one. There is a market reselling their kit as the one day deals etc they do are often much better than the ones they advertise in the papers, all with no hassle.

motorguy

Sorry i just read there now 'servers and fault tolerant mass storage devices'.

Businesses may well be prepared to pay extra, but again i'd have a look at dells server prices, bearing in mind it then becomes their problem to support them not yours.

Good Luck!!

newfoundglory

Thanks for all the info!

I actually intend making most of my profit from building 1U and 2U 19" rack servers. There is too much competition in the cheap-end personal and business desktop market.

The margins on raid 5 storage servers, multi-core database systems etc, cheap web hosting servers, and powerful custom gaming systems seems to be the way forward.

I have a dell account manager at work and i'm well aware of what they charge businesses.

motorguy

newfoundglory wrote: »

Thanks for all the info!

I actually intend making most of my profit from building 1U and 2U 19" rack servers. There is too much competition in the cheap-end personal and business desktop market.

The margins on raid 5 storage servers, multi-core database systems etc, cheap web hosting servers, and powerful custom gaming systems seems to be the way forward.

I have a dell account manager at work and i'm well aware of what they charge businesses.

Yeah we did high end gaming PCs and yes there was money at that end of the market. Good luck with your venture and have fun with the vat!! :rolleyes: