Should I be VAT registered?

[Burf86]

Yo Dudes!

As some of you may know I have been making bike frames, and trying to set up a company. So far it's being ticking over slowly, we are trying to build our exposure and watnot. Managed to sell 3 frames so far with a custom polo bike in the making.
Materials and gas and stuff costs me £300 and we sell them for £600, split between 2 of us.

I have to admit that I don't know much at all about how the VAT system works, I need to do some reading, but i was hoping to ask some advice from you guys too.
I can almost say for certain that we won't make more than VAT bracket where you have to start paying for it. But what I am wondering is if it would be advantageous for us to register in order to claim back the VAT we spend on materials? I would be able to claim the fuel spent on weekends travelling to races too, so that would help out loads!
My partner seems to think it would be more paper work and not much gain, and I think he is wrong

Cheers for any advice, and if you have a link to a useful website for me I'd well happy

 

[TechnicAl]

I think the minimum figure is £77000. So when your selling over a 100 bikes a year you may be eligible

 

[rtbcomp]

1) If you sell vattable goods to VAT registered companies then I would register.

2) If you sell non-vattable services to the public then don't.

Looks like you sit slightly above 2) so I wouldn't bother, I agree with your partner.

If you claim VAT back you have to pay HMRC VAT on your (VAT inclusive) sales.

You may not be able to claim the VAT on fuel, not too sure of the rules. I claim 45 per mile as expenses.

Remember the yearly VAT threshold works on a per-quarter basis, so if you have an exceptional 3 months that takes you over 25% of the threshold you have to register.

 

[ChrisJohnsSculpture]

You must register for VAT if you have a turnover of £77,000 or more. You can also register if your turnover is below this figure if you want to.

Basically the way it works is that you can reclaim VAT that you pay on materials, equipment etc that you use for your business and you must pay VAT on everything you sell.

eg if you buy a welder for £600 you can reclaim the VAT which is £100

and if you sell a frame for £600 you would need to pay the inland revenue £120 in VAT (20% of the retail price).

So if you're spending £300 (including VAT) on materials you could claim back £50, so in practice you would owe the IR £70.

The government site is here with more information. http://www.hmrc.gov.uk/vat/

It's rare that it's any advantage to be VAT registered, especially if you're manufacturing stuff since a lot of the value of what you sell is the labour. Although if you're starting a business which involves buying a lot of capital equipment it may be helpful in the short term.

Having said all that it doesn't should like you're anywhere near the threshold for compulsory VAT registration at the moment, although you should be registered as self employed which is relatively straightforward to do.

It would also be wise to obtain public and product liability insurance.

 

[cumbriasteve]

My advice would be apply for the free business start up course run by HMRC, it's really good and you may find you are missing out on what you are entitled to claim for and put tax against.

 

[mike os]

you need to register for VAT when or before your TURNOVER goes over the VAT threshold.

Do the maths, only you can determine if it is right or not, personally i think it is not the right thing to do yet.....mainly because you then need to add 20% to your labour costs (to cover the VAT) putting your prices up 10% with no net gain for yourselves.... if you can put your prices up that much without an impact on your buisiness then maybe you are not charging enough. Either that or you have to absorb the VAT costs... effectivly money out of your pocket.

If you were spending 75% of your total cost/income on VATable materials & services then it may be cheaper to be registered i would think... but remember you only manage the vat, you dont "get it back" on materials because you have to charge it on sales.

In truth though because of the way the overall system works it is only worth volunteering for VAT if you are going to make substantial capital purchases... tools equipment & premises, vehicles etc.

 

[Welderpaul]

I got VAT registered pretty soon after setting up; we passed ourselves off as a lot bigger than we actually were and as Clients sometimes don't want to deal with non-VAT registered companies, we needed to do it. As it happened we hit the VAT threshold fairly quickly so would have had to do it anyway. It enabled me to 'back claim' all the VAT i had spent on kit which was nice, but you do end up an unpaid tax collector. It can help cash flow with the extra 20% that comes in; just remember it has to go out again. I cream off the VAT from incoming payments and put in a seperate account ready for the quarterly payments to the HMRC. If you don't have masses of invoices raised and issued the paperwork isnt too bad once you get your head round it now. The Mrs can do the VAT return at a click of a button now we have Sage up and running.

 

[Eastblock]

I registered for VAT because I have been buying a lot of equipment. Because I sell worldwide it helps that non-EU customers can subtract 20% from the price which makes me quite competitive.

 

[F.J.]

I went self employed last October and my accountant told me last week that It would be best for me to go VAT registered now as I brin in more than I thought I would in such early days of starting up. Like others have said, you can claim back Vat on past purchases too which will help out. The only thin is for me is paperwork, I became a welder to get away from paperwork an it's back with a vengeance!!!