Setting up a sole trader bussiness, reclaiming VAT

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  • POPPYOSCAR
    POPPYOSCAR Posts: 14,897
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    My hope is to be selling to and working with small businesses mostly, because I think that's where I'll make more of my profits than individuals. I'll give it a go and see if they are willing to accept my small business without a vat number, but lets see.

    Why do they want a VAT no? Have you asked them?

    Many small traders are not registered for Vat.
  • spadoosh
    spadoosh Posts: 8,732
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    POPPYOSCAR wrote: »
    Why do they want a VAT no? Have you asked them?

    Many small traders are not registered for Vat.

    I work for a business that employs 50+ people with a turnover considerably higher than the £85,000, we're VAT exempt. Never had even the slightest issues setting up trade accounts. Never once been asked for VAT numbers. We dont buy computers often though but when we do we use a local computer guy who doesnt charge VAT as he's cheaper. <HINT HINT OP!!>

    In fact i dont think ive ever come across a company that wouldnt sell something to me because they wanted a VAT number. They want the money, they never ever care about the VAT number.
  • POPPYOSCAR
    POPPYOSCAR Posts: 14,897
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    spadoosh wrote: »
    I work for a business that employs 50+ people with a turnover considerably higher than the £85,000, we're VAT exempt. Never had even the slightest issues setting up trade accounts. Never once been asked for VAT numbers. We dont buy computers often though but when we do we use a local computer guy who doesnt charge VAT as he's cheaper. <HINT HINT OP!!>

    In fact i dont think ive ever come across a company that wouldnt sell something to me because they wanted a VAT number. They want the money, they never ever care about the VAT number.

    Yes, it seems very strange to me as well.
  • Pennywise
    Pennywise Posts: 13,468
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    You really do need to have dialogue with the wholesalers. I was approached by a potential client last year who had set up a limited company (because the wholesaler application form asked for limited company registration number) and registered for VAT (because the wholesaler application form asked for VAT registration number). She just "assumed" that these were requirements of the wholesaler and didn't believe me when I said it wasn't and that she'd wasted her time and money and caused herself a lot of stress over it. (It was several months after she'd set up that she finally decided to talk to an accountant.). I know that limited and VAT wasn't required because I had another client who used the same wholesaler who wasn't either. She went away and, yes, they confirmed neither VAT nor limited was an absolute requirement, so we got her company closed down and the VAT deregistered and she now trades as a sole trader, which is where she should have been in the first place.
  • SamPirul1985
    SamPirul1985 Posts: 4 Newbie
    edited 27 October 2017 at 4:19PM
    I've looked at five wholesalers/trade account websites and they all ask for it, some ask for turnover, details of my business, no of employees. I'm not even quite sure why these specifically matter to them and why they specifically ask.

    I haven't asked them, but all their application forms seem to want it, so look, I will go ask, if they don't then great.
  • Savvy_Sue
    Savvy_Sue Posts: 45,936
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    I've looked at five wholesalers/trade account websites and they all ask for it, some ask for turnover, details of my business, no of employees. I'm not even quite sure why these specifically matter to them and why they specifically ask.

    I haven't asked them, but all their application forms seem to want it, so look, I will go ask, if they don't then great.
    They ask, because if you HAVE these things, they need to know them.

    If you're VAT registered, anyone you trade with will need to know your VAT number - primarily because that's the 'proof' that you are in fact registered.

    If you're a limited company, they may check your registration status before allowing you a credit account. Since you've got no accounts showing yet, they may well not offer you any credit.

    That's two reasons why they ask for these things.

    I fill in all sorts of forms at work - small charity. We are limited, so I can give a company registration no. We also have a charity registration no. so I can give that when asked. We don't have a VAT number so I just leave that blank.

    When VAT registered companies quote for us they often quote us net of VAT, we have to remember that we'll be paying that PLUS 20%, but that's the way they do it. When they invoice us, they show the net price, and the VAT, and the gross price. We pay the gross. We can't claim the VAT back, because we've got nothing to set it off against.

    If I'm trying to open a credit account with a supplier, they can check we file our accounts on time and that we look solvent, at least up to now.
    Signature removed for peace of mind
  • 00ec25
    00ec25 Posts: 9,123
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    edited 28 October 2017 at 4:41PM
    You cut out the part I also said "and still reading on the subject".. Never claimed to know everything, but it's a bit of a stretch to say I have no idea how it works...
    what you wrote about VAT says otherwise, however, you have now had it explained so you know how it works now
    I've looked at five wholesalers/trade account websites and they all ask for it, some ask for turnover, details of my business, no of employees. I'm not even quite sure why these specifically matter to them and why they specifically ask.

    I haven't asked them, but all their application forms seem to want it, so look, I will go ask, if they don't then great.
    the fact a wholesaler asks for certain info does not mean they will not accept your custom if you cannot answer all their questions

    if they will only accept VAT registered customers then their application form would very clearly say so to avoid wasting everyone's time
  • motorguy
    motorguy Posts: 22,452
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    My hope is to be selling to and working with small businesses mostly, because I think that's where I'll make more of my profits than individuals. I'll give it a go and see if they are willing to accept my small business without a vat number, but lets see.

    I think you're about 20 years too late with this business "idea". Selling your own pre-built computers to friends, family and small businesses is a recipe for disaster. I did it about 15 years ago and even then i was too late to the game (probably by about 10 years)

    If you really must persist, i would NOT attempt to VAT register until you have proven that you a high percentage of VAT registered businesses that you are supporting.

    Othewise you basically end up paying 20% VAT on your profit / charges for services.

    Say you buy parts for £300+VAT = £360. Great, you reclaim the VAT so its £300.

    Say you then sell it for £400 to a family member or friend. Well thats a VAT inclusive price so you've actually sold it for £333.33+VAT, so you've to pay the VAT man £66.67 in VAT. So instead of making a headline £100 VAT exclusive price rather than potentially £40 if you bough for £360 and sold for £400, you've actually to give the VAT man £6.67 out of that £40 now.

    You wont be able to compete with the prices that companies sell for off the shelf (as they have vast economies of scale) and people you'll be selling to will believe they are entitled to 24x7 support. Forever.
  • motorguy
    motorguy Posts: 22,452
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    I've looked at five wholesalers/trade account websites and they all ask for it, some ask for turnover, details of my business, no of employees. I'm not even quite sure why these specifically matter to them and why they specifically ask.

    I haven't asked them, but all their application forms seem to want it, so look, I will go ask, if they don't then great.

    As a sole trader, not yet VAT registered, no trading history and with very limited buying power you're definitely not going to get a credit account and you're going to get the minimum level of discount.
  • motorguy
    motorguy Posts: 22,452
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    There is absolutely no harm in trying to buy trade goods at trade prices, but they'll charge you VAT as they expect you to reclaim it. While you are still assembling systems for friends & family & even others there is no point being VAT registered as it just adds 20% to everything you do.

    Once you do hit the threshold, or realise you are going to, then you have to bite the bullet & register & that's where a good accountant can advise you - for example on whether to carry on as a sole prop or to go limited.

    Me, I'd go limited stat just to seperate my personal finances from the business money. As a sole prop, if you sell £100 pounds worth of goods at a car boot, when that money hits your bank account, HMRC won't distinguish between earnings as an IT bod & car boot income. As far as they look at it, every penny in is income, and they'll want their 20%. That you didn't buy the stuff to car boot, that you didn't reclaim any input tax on the stuff? They won't give a hoot.

    If you find yourself ever renting a property even if it is grandma's bungalow, then you get into the murky waters of Partial Exemption and it really is worth going limited to Stay Well Out of that!

    Hoping your idea takes off!

    Limited Co adds an awful lot of accountancy hassle and increases accountancy charges. I'd run with a separate business account - or even just a second account in my own name - and put all the business stuff purely through that.

    HMRC arent going to scrutinise your personal account but it is best to seperate business out to another account.

    If there is a real need to be a Limited Co at some point, you can convert then.
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