VAT Question... Help Needed

RBKATU

Hi,

my business has recently been VAT registered. Our business involves buying and selling secondhand items. We buy the items privately from the public so we don't get any VAT dockets for the purchases. I have been informed by our accountant that we have to pay 23% VAT on all the items we sell.

Here is a breakdown of a common transaction of ours.

Buy €295
Sell €375
Vat 23%= €86.25

From the €80 profit we would make we now have to pay €86.25 VAT, therefore we would be losing money on every item.

We're in a very competitive market so we can't add the €86.25 onto the €375 sale price.

I just want to know what other solutions the government has for people in business selling used items that cannot get VAT dockets.?

Thanks for your time.

nompere

Have you asked your accountant why he doesn't think that the margin scheme applies?

http://www.revenue.ie/en/tax/vat/leaflets/margin-scheme-second-hand-goods.html#section4

Howjoe1

Any chance your turnover would remain below the €75.000 threshold for registration?

alternatively you will have to drive down the purchase price with unregistered sources to make it anyway profitable, if you can't add VAT to sale price and remain competitive.


eg

Buy €210
Sell €375 vat incl

RBKATU

nompere wrote: »

Have you asked your accountant why he doesn't think that the margin scheme applies?

http://www.revenue.ie/en/tax/vat/leaflets/margin-scheme-second-hand-goods.html#section4

Thanks for the reply. I have read over this and believe that it may apply to us. I will ask our accountant in the morning. Thanks
Just found out for him that it doesn't apply to us...

RBKATU

Howjoe1 wrote: »

Any chance your turnover would remain below the €75.000 threshold for registration?

alternatively you will have to drive down the purchase price with unregistered sources to make it anyway profitable, if you can't add VAT to sale price and remain competitive.


eg

Buy €210
Sell €375 vat incl

Hi, thanks for the reply. No we are well over €75,000. That example is what we may have to do which may be almost impossible to achieve.

The_Bot

While I have some knowledge of VAT, its not my area of expertise (direct taxes is where I am at) so I’m happy to be corrected on the below.

However, I reckon the reason why you can't get any VAT receipts for the items you purchase is because that sale/purchase is not liable to VAT in the first place (because the seller is a private individual and presumably is not selling the product as part of a business activity). There is simply no VAT on the sale of the product to you. Just because the seller might include in his price the VAT he originally suffered when acquiring the product does not mean there is VAT on the sale to you. It appears to me that the sale to you is not within the scope VAT.

On the output side, if you are selling the products to VAT registered business customers then they should be able to reclaim any VAT you charge, so it wouldn't be an actual cost to them to have to pay the VAT to you (other than a cashflow one)

If you are selling to private customers, then the VAT would be a cost to them and that is the case for any VATable supply to private individuals across the economy.

All of the above should apply equally to all your competitors. If it is a very competitive market, I am struggling to see how anyone would stay in the market if applying VAT on sale (if this is indeed correct) would mean that the margins are wiped out. Why would anyone stay in the market on those terms?

This doesn’t make sense to me and, unless I’m missing something, I think there might a crucial detail that is being overlooked somewhere.

Masala

Why register for VAT at all???

If all r inputs have no vat element - then when not stay out of system and not charge VAT??

(Do u have to register for VAT if turnover over 75k... or is it optional)

Howjoe1

Masala wrote: »

Why register for VAT at all???

If all r inputs have no vat element - then when not stay out of system and not charge VAT??

(Do u have to register for VAT if turnover over 75k... or is it optional)

Yes, registration compulsory if or when ..you exceed or are likely to exceed the threshold limit.

---

The- Bot,

I think he is selling to unregistered customers, therefore passing on the VAT is non-recoverable and a real extra cost to his customers and pushes his price too high. Unfortunately, it seems the business plan miscalculated (or completely forgot) the VAT impact on the proposed business.

The_Bot

Masala wrote: »

Why register for VAT at all???

If all r inputs have no vat element - then when not stay out of system and not charge VAT??

(Do u have to register for VAT if turnover over 75k... or is it optional)

It is mandatory to register for VAT if your annual turnover from the supply of goods is (or is expected to be) in excess of €75K

The_Bot

Howjoe1 wrote: »

Yes, registration compulsory if or when ..you exceed or are likely to exceed the threshold limit.

---

The- Bot,

I think he is selling to unregistered customers, therefore passing on the VAT is non-recoverable and a real extra cost to his customers and pushes his price too high. Unfortunately, it seems the business plan miscalculated (or completely forgot) the VAT impact on the proposed business.

I agree with you on that but, if the levying of VAT on the sale can't happen without him being pushed out of the market pricewise, then the OP really needs to consider how can his competitors be charging the same price (which presumably would be VAT inclusive) and make any sort of gross margin (never mind a net profit).

That the market actually functions on the basis of the price given in the first place would indicate that something is amiss in the OP's own analysis (like you say). The obvious culprit is the price he pays for the product is too high but that appears to have been ruled out in an earlier post.

Howjoe1

The_Bot wrote: »

I agree with you on that but, if the levying of VAT on the sale can't happen without him being pushed out of the market pricewise, then the OP really needs to consider how can his competitors be charging the same price (which presumably would be VAT inclusive) and make any sort of gross margin (never mind a net profit).

That the market actually functions on the basis of the price given in the first place would indicate that something is amiss in the OP's own analysis (like you say). The obvious culprit is the price he pays for the product is too high but that appears to have been ruled out in an earlier post.

The clue might by in the "buying and selling 2nd hand goods"

Take donedeal or ebay, both parties are typically not vat registered.

I assume his competitors buy new stock from trade, claiming back VAT and able to factor in a much higher margin.

The_Bot

Howjoe1 wrote: »

The clue might by in the "buying and selling 2nd hand goods"

Take donedeal or ebay, both parties are typically not vat registered.

I assume his competitors buy new stock from trade, claiming back VAT and able to factor in a much higher margin.

May well be, OP's business model would be in big trouble as a result.

RBKATU

Masala wrote: »

Why register for VAT at all???

If all r inputs have no vat element - then when not stay out of system and not charge VAT??

(Do u have to register for VAT if turnover over 75k... or is it optional)

Hi, yes registration is compulsory.

RBKATU

The_Bot wrote: »

While I have some knowledge of VAT, its not my area of expertise (direct taxes is where I am at) so I’m happy to be corrected on the below.

However, I reckon the reason why you can't get any VAT receipts for the items you purchase is because that sale/purchase is not liable to VAT in the first place (because the seller is a private individual and presumably is not selling the product as part of a business activity). There is simply no VAT on the sale of the product to you. Just because the seller might include in his price the VAT he originally suffered when acquiring the product does not mean there is VAT on the sale to you. It appears to me that the sale to you is not within the scope VAT.

On the output side, if you are selling the products to VAT registered business customers then they should be able to reclaim any VAT you charge, so it wouldn't be an actual cost to them to have to pay the VAT to you (other than a cashflow one)

If you are selling to private customers, then the VAT would be a cost to them and that is the case for any VATable supply to private individuals across the economy.

All of the above should apply equally to all your competitors. If it is a very competitive market, I am struggling to see how anyone would stay in the market if applying VAT on sale (if this is indeed correct) would mean that the margins are wiped out. Why would anyone stay in the market on those terms?

This doesn’t make sense to me and, unless I’m missing something, I think there might a crucial detail that is being overlooked somewhere.

Hi, we sell to non registered people and buy from non registered also. I presumed that we would be paying VAT on the difference between cost and sale. In truth we don't have too many competitors and most would be selling the items new.(Maybe this is why)

RBKATU

Howjoe1 wrote: »

Yes, registration compulsory if or when ..you exceed or are likely to exceed the threshold limit.

---

The- Bot,

I think he is selling to unregistered customers, therefore passing on the VAT is non-recoverable and a real extra cost to his customers and pushes his price too high. Unfortunately, it seems the business plan miscalculated (or completely forgot) the VAT impact on the proposed business.

Hi, maybe we did miscalculate the VAT as we just presumed that it would be calculated on the difference between the cost and sale price. After reading up on the Margin Scheme I believe that our business should be able to apply for it.

antoinolachtnai

Yup, margin scheme should apply in relation to second hand goods (and certain other cases also). You don't really apply for the margin scheme as I understand it, you just apply it. But you really need good professional advice here.

RBKATU

antoinolachtnai wrote: »

Yup, margin scheme should apply in relation to second hand goods (and certain other cases also). You don't really apply for the margin scheme as I understand it, you just apply it. But you really need good professional advice here.

Ok thanks for the reply. I'll just ring my local tax office tomorrow and they should be able to advise me.

antoinolachtnai

Do that for sure and though you might get some help in general terms, don't necessarily expect them to advise you on your tax situation. It isn't really their job. It is the job of your professional advisers.

Alan Shore

RBKATU wrote: »

Thanks for the reply. I have read over this and believe that it may apply to us. I will ask our accountant in the morning. Thanks
Just found out for him that it doesn't apply to us...

Has your accountant explained why it does not apply to you.

You can ring the tax office and they will tell you it applies but your accountant will be filing your returns and if they don't think you can avail of the scheme I can't see how you can work with them.

RBKATU

Alan Shore wrote: »

Has your accountant explained why it does not apply to you.

You can ring the tax office and they will tell you it applies but your accountant will be filing your returns and if they don't think you can avail of the scheme I can't see how you can work with them.

No, he just said that it doesn't apply. I'll just ring the tax office and find out. Thanks

Alan Shore

You are paying a professional for their advice. They tell you knowing the exact type of business that you are in that it does not apply but you think that someone in the tax office will give you a general answer about the margin scheme.

Then you go back to your accountant to tell them that the tax office say that the margin scheme applies to you.

I can't understand how you could take the advice of your accountant on anything in the future.

beeftotheheels

I'm with Alan on this. You pay your accountant to advise you. Either the margin scheme applies or it does not apply to your business.

Your accountant might not deal with it a lot and may have missed it, in which case he should say that to you.

Your accountant may have a reason why it doesn't apply to the specifics of your business in which case he's giving you a more definitive answer than you'll get off the tax office.

But you need to be able to trust him, and if you don't trust him then you need to consider changing accountants.

The Woodcock

Another VAT-related question.

If a business is registered for VAT, are they then obliged to charge VAT on goods/services or can they opt out of doing so?

antoinolachtnai

In general terms, yes, you are obliged once you are over the threshold. You cannot 'opt out' of VAT. There may be some very minor exceptions to this in very specific areas.

You can de-register if you are below the threshold, but that's a different thing. Once you do that you are no longer registered for VAT.