Pitfalls with Zero Rate Vat.

Frere Jacques

Hi all,
My wife is set up as a sole trader and currently does 100% of her sales with the UK. 90% of this is done with two large Vat registered companies. She never considered registering for VAT in the past as she is only in year two since formation and we are learning as we go. We always thought it was going to increase her prices by 23% and negate a competitive advantage we had over larger suppliers. Now we understand a bit more about Vat we see this is not so.
Now we think it is more beneficial as only 10% of her customers would be affected by her registering for Vat. My question is a basic one but I can't find any worked examples.
If she registers for Vat, (voluntarily as well under the threshold) and all of it is zero rated, can she still write off the vat on her raw materials bought in this country even though she won't be collecting a cent of the Vat here. Is it a single market thing, so even if she doesn't collect it, it was her actions that generated it so the Vat benefits are hers to offset against her suppliers.

Obviously you can assume the Vat on the purchases will not exceed that on the sales.
She will also ensure that all documentation is kept such as shipping bills and invoices with both her and her customers Vat number on them.

She wants to approach the two main customers before she registers and just clear it with them first but she just wants to be sure it is of benefit before she wastes their time.
Is there anything else that should worry her as a Sole Trader dealing with Zero rating?
Thanks as always.
FJ.

gerrybbadd

Frere Jacques wrote: »

Hi all,
My wife is set up as a sole trader and currently does 100% of her sales with the UK. 90% of this is done with two large Vat registered companies. She never considered registering for VAT in the past as she is only in year two since formation and we are learning as we go. We always thought it was going to increase her prices by 23% and negate a competitive advantage we had over larger suppliers. Now we understand a bit more about Vat we see this is not so.
Now we think it is more beneficial as only 10% of her customers would be affected by her registering for Vat. My question is a basic one but I can't find any worked examples.
If she registers for Vat, (voluntarily as well under the threshold) and all of it is zero rated, can she still write off the vat on her raw materials bought in this country even though she won't be collecting a cent of the Vat here. Is it a single market thing, so even if she doesn't collect it, it was her actions that generated it so the Vat benefits are hers to offset against her suppliers.

Obviously you can assume the Vat on the purchases will not exceed that on the sales.
She will also ensure that all documentation is kept such as shipping bills and invoices with both her and her customers Vat number on them.

She wants to approach the two main customers before she registers and just clear it with them first but she just wants to be sure it is of benefit before she wastes their time.
Is there anything else that should worry her as a Sole Trader dealing with Zero rating?
Thanks as always.
FJ.

Simply put, yes, she can claim back the VAT incurred, if registered for VAT, as long as it applies to her business activity.

Your wife can apply for something called a VAT 56B authorisation also, which means that she can obtain goods etc from her suppliers without VAT being charged, as over 75% of her sales are exports

http://www.revenue.ie/en/tax-professionals/tdm/value-added-tax/part10-special-schemes/zero-rating-goods-and-services-s56/special-schemes-s56-zero-rating-goods-and-services.pdf