VAT Small Business Advice
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DonnaCamp
Posts: 8 Forumite
in Cutting tax
Hi,
I'm in the process of starting a small online business selling items on eBay and I want to make sure I'm doing everything correct in terms of VAT.
Many of the goods I'm selling are from suppliers on a dropship basis (I sell the item, the supplier ships to my customer on on my behalf) and this means I'm being invoiced and paying for goods via pro formas.
For all these items I'm being charged VAT from my suppliers and although I don't anticipate hitting the VAT threshold I'm tempted to become voluntarily VAT registered so I can reclaim VAT back.
Does this sound like a bad idea? Should I avoid becomming VAT if it's unnessacary and just continue to pay VAT to my suppliers and obviously not charging VAT to my customers?
Any help/advice would be appreciated!
I'm in the process of starting a small online business selling items on eBay and I want to make sure I'm doing everything correct in terms of VAT.
Many of the goods I'm selling are from suppliers on a dropship basis (I sell the item, the supplier ships to my customer on on my behalf) and this means I'm being invoiced and paying for goods via pro formas.
For all these items I'm being charged VAT from my suppliers and although I don't anticipate hitting the VAT threshold I'm tempted to become voluntarily VAT registered so I can reclaim VAT back.
Does this sound like a bad idea? Should I avoid becomming VAT if it's unnessacary and just continue to pay VAT to my suppliers and obviously not charging VAT to my customers?
Any help/advice would be appreciated!
0
Comments
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Depends whether your customers are domestic or business and if business, whether they're VAT registered or not.
If you sell to domestic or non VAT registered businesses, usually best to avoid VAT registration as you end up suffering/losing the VAT on your profit/margin.
If you sell to VAT registered businesses, usually better to register as you charge the VAT and your customers claim it back, so you don't lose out and can benefit by reclaiming VAT on other costs too such as expenses/overheads.
All assuming you are buying/selling in the UK. If you have "international" aspects, i.e. buying from abroad (inc EU) or selling abroad (inc EU), then things can be a lot more difficult and you'd need specialist advice.0 -
Thanks for the advice. All my sales are to UK domestic customers.
The thing that is attracting me towards registering is because I'm selling on eBay - where the margins are already tight when you account for listing fees, final values fees and PayPal fees they become even smaller. Then you throw VAT from suppliers product and carriage charges into the mix it becomes a fine line into actually making any profit - And I'm thinking I can reclaim some of these costs.
But I also don't want to make a rod for my own back here ...0 -
Yes, registering for VAT would allow you to reclaim VAT on many of your costs, however you're missing the fact that you would have to then charge VAT on your sales. In effect one sixth of your sales turnover would be paid over to HMRC as output tax, and would exceed the VAT reclaimable on your costs, making you worse off over all.0
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Yes, registering for VAT would allow you to reclaim VAT on many of your costs, however you're missing the fact that you would have to then charge VAT on your sales. In effect one sixth of your sales turnover would be paid over to HMRC as output tax, and would exceed the VAT reclaimable on your costs, making you worse off over all.
Yes, at the moment you make a sale of £6 and get to keep whatever is left over after ebay/paypal fees. If you were VAT registered, you'd have to pay £1 of that to HMRC and only have £5 left over to pay paypal, ebay fees etc. You're only better off if you make a loss!0 -
you cannot reclaim VAT and not charge VAT in your context, so for the sake of repetition:
Not Vat registered:
buy an item for £5, sell it for £6. Profit £1 = bliss
Am VAT registered.
Customers are not, so we will assume your customers are price sensitive and therefore you cannot increase your price to cover the VAT you must now charge. So:
Buy an item for £5 (incl VAT) reclaim 1/6th of that as recoverable VAT = £0.83
Sell the item for £6 (incl VAT) so Vat amount is 6 x 1/6 = £1
Profit made: £6, less £1 VAT to HMRC, less £5 paid to supplier , add back £0.83 VAT reclaimed from HMRC. Net profit 17 pence
Congratulations, by being able to reclaim 83p VAT, your profit has collapsed from £1 to 17 pence because you now have to pay VAT on what you sell. Superb business decision to become VAT registered....
(why 1/6? because £4.17 x 20% = £0.83 and 4.17+0.83 = £5. In mathematical terms, VAT is an addition to the (net) price you are selling at, that price is the equivalent of 100% so you add another 20%, meaning your (gross) selling price is equivalent to 120%, and the VAT in that is 20/120 = 1/6)0 -
Is your eBay market saturated? Are you the cheapest seller?
The problem I see with commercial eBay is it's almost always a race to the bottom in saturated markets. Are you still going to be the cheapest seller with the added VAT costs.
Also, you need to consider Brexit, if we leave without a deal the EU tariffs will directly affect you.0
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