Registration for VAT - New Company

ImDave

Just a quick question. I am starting a business distributing a particular product within Ireland. My revenue forecasts are unreliable, however it is a possibility that I will exceed the revenue figure €55,000, which requires registration for VAT. My question is, if I register for VAT now, and fail to generate €55,000 in revenue, are there any implications for this as such.

is_that_so

Nope except that because it is up to you to pay the VAT you may find yourself having to pay out hard-earned cash when you least want to, and it could affect your "cash flow". On the other hand it is more than likely that organisations you are dealing with will expect you to have a VAT number. IMO the best thing is to have a separate account for tax and VAT.

information

is_that_so wrote: »

except that because it is up to you to pay the VAT you may find yourself having to pay out hard-earned cash when you least want to, and it could affect your "cash flow". On the other hand it is more than likely that organisations you are dealing with will expect you to have a VAT number. IMO the best thing is to have a separate account for tax and VAT.

Waffle or very bad communication.
First word is correct, there is no implications if you register and fail to reach the target.

VAT is the governments money and you collect it for them.
You can actually use VAT to improve your cash flow, if you organise your invoice dates in a certain way.

If you are selling to VAT registered people register for VAT, as it will not affect your price and you can claim the VAT back on purchases, which will improve cash flow.

If you are selling to the public who are not VAT registered, then evaluate it further as registering for VAT will mean a higher price for your product.

Chunks

EI-DAV wrote: »

Just a quick question. I am starting a business distributing a particular product within Ireland. My revenue forecasts are unreliable, however it is a possibility that I will exceed the revenue figure €55,000, which requires registration for VAT. My question is, if I register for VAT now, and fail to generate €55,000 in revenue, are there any implications for this as such.

Can you tell me if i'm right or not.....

If I read your post correctly am I right in saying that a company only has to pay VAT if it's taking in the year exceed €55,000?

So essentially if I charge 21% VAT on my goods/services and my annual takings don't exceed €55,000 I can keep that 21% ???

Is that right?

Thanks.

Boomtastic

Chunks wrote: »

Can you tell me if i'm right or not.....

If I read your post correctly am I right in saying that a company only has to pay VAT if it's taking in the year exceed €55,000?

So essentially if I charge 21% VAT on my goods/services and my annual takings don't exceed €55,000 I can keep that 21% ???

Is that right?

Thanks.

No way! If you charge VAT then you must pass it on to the VAT man. You can register for VAT and not turnover more than 55k.

Chunks

Boomtastic wrote: »

You can register for VAT and not turnover more than 55k.

I'm still confused

so if I register for VAT I have to pay VAT.... but if I don't register for VAT i don't have to pay VAT... ??? whats all this about €55,000 then?

I don't get it..... layman's terms please?

thecleverone

Regardless of what your turnover is, you can elect to be registered for Vat should you so wish.

However, if your turnover exceeds €37,500 (services) or €75,000 (goods), then you HAVE TO register for Vat. Until you reach these thresholds, you don't have to be Vat registered.

Chunks

thecleverone wrote: »

Regardless of what your turnover is, you can elect to be registered for Vat should you so wish.

However, if your turnover exceeds €37,500 (services) or €75,000 (goods), then you HAVE TO register for Vat. Until you reach these thresholds, you don't have to be Vat registered.

perfectly summarised, thank you very much.

For example. If I was to charge VAT at 21% on services and i hadn't reached €37500 would I still have to pay VAT? Technically I shouldnt charge VAT unless I was registered for VAt though, right?

thecleverone

If I was to charge VAT at 21% on services

You could only charge VAT if you are Vat Registered

and i hadn't reached €37500 would I still have to pay VAT?

Only if you are VAT Registered. If you haven't reached the €37,500 threshold and are VAT registered, this means that you have elected to be VAT registered.

Technically I shouldnt charge VAT unless I was registered for VAt though, right?

Not really "Shouldn't" charge VAT, but CAN'T charge VAT unless you are VAT Registered.

jayo2004

what happens if you don't register for VAT and you make over €37500? I'm starting up also and not sure whether to register for VAT or not. Some people say do and some people say don't.I'm confused and haven't a clue what to do???

EIREHotspur

I'd like to know answers to these questions too.

To Vat or not to Vat.

Of course if you are buying Commercial vehicles or other vat heavy business things at a startup then the temptation is there to sign up.

wiredup

Mmm,

Lets say I buy a product whole sale for €10. I am charged €2.10 vat total €12.10.

I sell that product for €15 and make €2.90 profit.

Now if I am registered the product cost me only €10 as I can claim the vat back but I must now pay 21% on the product I sell for €15. This is €3.55.

So I now pay €3.55 but can only claim back €2.10. Why would I want to register for vat if it makes me less competitive?

jayo2004

Jesus I'm totally confused now:eek:

information

VAT is a tax, that businesses collect for the government, if you are VAT registered you simply collect the money and pass it on to the government, its never your money. If you are not VAT registered you pay VAT when you buy things.

To Register or Not

1. No question, if you are selling above the thresholds you have to register.

2. If you are selling to non VAT entities ie(general public) its best not to register as it will increase your price to the buyer. But you will have to pay VAT on purchases.

3. If you are selling to VAT registered entities ie(Companies) then its best to register as it will not affect your price and you can reclaim the VAT payed on purchases.

Chunks

wiredup wrote: »

but I must now pay 21% on the product I sell for €15. This is €3.55.

So I now pay €3.55 but can only claim back €2.10. Why would I want to register for vat if it makes me less competitive?

you only pay VAT on stuff you buy, not what you sell.

information

Chunks wrote: »

you only pay VAT on stuff you buy, not what you sell.

In his example he charged a customer €3.55 VAT when he sold them something, he now has to give/pay this money to the revenue.

Chunks

information wrote: »

In his example he charged a customer €3.55 VAT when he sold them something, he now has to give/pay this money to the revenue.

I stand corrected.

I just re-read his post and i think it's safe to say.... I'm now officially confused to fuck. I thought I had it there for a while....

DublinDilbert

Chunks wrote: »

you only pay VAT on stuff you buy, not what you sell.

Yes you pay VAT on stuff you buy. You charge your customer VAT on stuff you sell.


1) You can claim back the VAT you pay on stuff you buy from Revenue.
2) You pay the VAT you charge your customer to Revenue.

Your total VAT liability can be calculated by subtracting 1 from 2. In general the value for 1 is smaller than the value for 2, hence you owe the revenue.

FastFonz

I am also considering registering for VAT.

In relation to online sales, Whats to say i sold to a member of the public as opposed to a VAT registered company?

I deal with a small amount of internet sales, what would be the common practice for charging VAT to an online sales customer?

DublinDilbert

FastFonz wrote: »

Whats to say i sold to a member of the public as opposed to a VAT registered company?

Makes no difference, both should pay you VAT (unless the company has a VAT exemption, which you will need to get written proof of to sell VAT free ).

Any company you charge VAT to will be able to claim it back.

joePC

Let say I buy a clock VAT free from a distributor for €50 ex vat

I sell the clock for €100 Inc VAT

I now own the Revenue 21% of €100 = €21

Profit = 100 - 21 - 50 = €29

Is this correct.

heggie

yes, so by registering for VAT you can claim back the VAT you spend on the clock your purchased.

If you were not VAT registered, it would go like this:

Buy clock for 60.50 inc vat (cost to you) sell for 79 to customer, profit = 18.50

FastFonz

So if you registered would you pay the €60.50 and claim back the vat on your purchase afterwards?

information

joePC wrote:

Let say I buy a clock VAT free from a distributor for €50 ex vat

I sell the clock for €100 Inc VAT

I now own the Revenue 21% of €100 = €21

Profit = 100 - 21 - 50 = €29

Is this correct.

heggie wrote: »

yes, so by registering for VAT you can claim back the VAT you spend on the clock your purchased.

If you were not VAT registered, it would go like this:

Buy clock for 60.50 inc vat (cost to you) sell for 79 to customer, profit = 18.50

No that is not correct

1:

I sell the clock for €100 Inc VAT
I now own the Revenue 21% of €100 = €21

No you owe the revenue € 17.36, as the € 100 = 121% of price
You charge € 82.64 + VAT @21% = € 17.36 Total = € 100
Profit = 100 - 17.36 - 50 = €32.64

2:
You don't buy the clock vat free, vat is charged on the clock so it will cost you €60.50
You then claim €10.50 back from the revenue

joePC

I understand what your saying but cant quite figure out how it works - can you explain how you get €82.64 in the above example.

E.g. What formula do you use?

joePC

Got it,

( [VAT Rate] / 100 ) * [Original Price] = [Amount of VAT Payable]
for example
( 17.5 / 100 ) * 72.33 = 12.66 (rounded)
to get the final price add £12.66 to £72.33 to get £84.99

dooloo

joePC wrote: »

I understand what your saying but cant quite figure out how it works - can you explain how you get €82.64 in the above example.

E.g. What formula do you use?

€100 / 1.21 = €82.64.

The €100 includes VAT at 21%

spectre

Say I start a company, register for VAT, buy my equipment make my sales.
At year end, I make a small VAT payment to Revenue. Say my sales fall short of the 55K threshold.

Can I now de-Register myself for year two, seeing as how I failed to reach the threshold on the first year?

thecola

joePC wrote: »

Let say I buy a clock VAT free from a distributor for €50 ex vat

I sell the clock for €100 Inc VAT

I now own the Revenue 21% of €100 = €21

Profit = 100 - 21 - 50 = €29

Is this correct.

Geee, but the only place I have experienced such tax calculation was by some accountants in Venezuela... the Hugo country.:pac:

Accountant

If you expect turnover to exceed tresholds then register for vat.

Your a distribution business so the rate is 21% and the treshold is 37,500.

Trojan

Aside: sometimes you want to register for VAT even though you don't hit the threshhold (marketing, or simply to save on UK purchases upfront)

ShooterSF

First off sorry for digging up an old topic but hey I used the search function!
Secondly I understand the calculations. Always was good in accountancy class

But I have a few questions I'd appreciate help with.
My self and a colleague are starting up a PC repair partnership. As I understand it if we apply for vat it would be at 13.5% correct?

We have no positive reason to apply for vat a.t.m though as our purchases would be minimal and our customers would be home based. And as it's only starting small we may not meet the threshold in our first year.

Now does the vat year start at a set date or is it from the start of business?

For simplicity sake using an example let's say we charge €50 per service and are not registered for vat. Now let's say 10 months into the vat year it becomes likely that we are going to surpass the unlikely threshold can we then "back-register" for vat to the start of the year?
If so are there any penalties?
Also is th previous €50 fees then treated as,
€44.25 + €5.75 VAT OR
€50 + €6.50 VAT and if so am I expected to go around my previous customers and try and extract the VAT?

Last question and I understand if this is a gray area and I should consult a solicitor but if anyone else has asked before they might be able to fill me in on it.
Would it be legal to register as 2 sole traders and share a customer and knowledge base. The turnover would therefore be split and less liely to surpass the threshold. I'm only asking as I'm not sure of the legality of the situation...

Thanks in advance guys.

Yamo2004

I am in the process of setting up a new business, which is in the business network sector. I know that training is exempt from charging VAT. Does anyone know if networking is? Thanks.

Accountant

You need to be more specific on what your business will do.

WHU

Could someone please tell me if this is correct

If I was not registered for Vat:

I buy a product for 50 plus vat= 60.75
I sell product for 100
profit = 100 - 60.75 = 39.75

If I was VAT registered:

I buy a product for 50 plus vat = 60.75
I can claim back 10.75 from vat man from my purchase

I sell product for 100 plus vat = 121.50
I owe vat man 21.50 from my sale.

Therefore vat man requests 21.50 - 10.75 = 10.75 from me.

leaving me a profit of 121.50 - 60.75 = 60.75

If this is correct (Please correct me if I am wrong) you could under the vat system charge less net for your product giving you the same profit margin.

dbran

WHU

No this is incorrect. The profit in senario (2) is 100-50 = 50. The difference is the fact you can recover the VAT on the purchases as a vat registered trader and thus profits are increased.

The only reason you would not register for VAT is

1) If you are trading to non vat registered people. They would not be too happy because you will be charging them an extra 21.50 that they cant recover.

2) Administration costs. There are not many products that have the 100% markup that you describe. For a person with a low level of turnover the saving would not be as clear cut as this. Compared with the extra paperwork, accountancy costs, exposure to revenue audit, additional compliance etc. it may be easier to stay unregistered.

Registering for VAT may also adds a certain view of professional business rather then "nixer" hobby business.

Hope this helps

DB

WHU

Thanks DB, I think I will start off un-registered for now and if things change I will cross that bridge then.

MrGadget

Im a photographer wanting to do a book....
if i start a business with lots of outlay costs, so alot of VAT.. and no income the first year can i claim the vat back anyway ?