Suppliers, VAT, and my Stupidity

Kilboor

Hi all,

I am in the process of starting an Irish based ecommerce business selling physical goods.

I realise that in general I do not need to register for a VAT Number as I do not hit this threshold, however this is where I run into a bit of confusion. So my EU based supplier is asking for a VAT number for my purchase. I'm wondering what the purpose of this is? If I supply a VAT number I presume the goods will arrive to me VAT free and then I will be obliged to add VAT on my goods.

However, if I did not register for the VAT number I will be paying VAT on import? And not have to add VAT again onto the price of my goods?

Thanks

DubTony

Kilboor wrote: »

Hi all,

If I supply a VAT number I presume the goods will arrive to me VAT free and then I will be obliged to add VAT on my goods.

However, if I did not register for the VAT number I will be paying VAT on import? And not have to add VAT again onto the price of my goods?

Correct

RUDOLF289

Kilboor wrote: »

Hi all,

I am in the process of starting an Irish based ecommerce business selling physical goods.

I realise that in general I do not need to register for a VAT Number as I do not hit this threshold, however this is where I run into a bit of confusion. So my EU based supplier is asking for a VAT number for my purchase. I'm wondering what the purpose of this is? If I supply a VAT number I presume the goods will arrive to me VAT free and then I will be obliged to add VAT on my goods.

However, if I did not register for the VAT number I will be paying VAT on import? And not have to add VAT again onto the price of my goods?

Thanks

In case you are not registered for VAT in Ireland, your supplier will be obliged to charge you VAT at the rate that applies in his country.

If you are registered for VAT in Ireland, if you submit your VAT registration details to your EU supplier he will issue a zero VAT invoice. In that case you are obliged to include the purchase in your VAT return. However, if the purchase is wholly for your business you are entitled to claim a deductible for the same amount in the same VAT return.

Obviously registering for VAT means that on your sales to Irish customers you would have to charge VAT and remit that to Revenue through your VAT return. It depends on what your market is; Consumers or Businesses. Business can reclaim the VAT (as a VAT registered business). Consumers have to pay VAT, just like they would when buying in shops.

Hope this helps to clarify?

Cheers,
Rudolf289

RUDOLF289

DubTony wrote: »

Correct

Hello DubTony, the OP would not be paying VAT on arrival on imports from EU member states. If he is not registered for VAT in Ireland, the supplier will have to charge VAT as applicable in their country.

Kilboor

RUDOLF289 wrote: »

Kilboor wrote: »

Hi all,

I am in the process of starting an Irish based ecommerce business selling physical goods.

I realise that in general I do not need to register for a VAT Number as I do not hit this threshold, however this is where I run into a bit of confusion. So my EU based supplier is asking for a VAT number for my purchase. I'm wondering what the purpose of this is? If I supply a VAT number I presume the goods will arrive to me VAT free and then I will be obliged to add VAT on my goods.

However, if I did not register for the VAT number I will be paying VAT on import? And not have to add VAT again onto the price of my goods?

Thanks

In case you are not registered for VAT in Ireland, your supplier will be obliged to charge you VAT at the rate that applies in his country.

If you are registered for VAT in Ireland, if you submit your VAT registration details to your EU supplier he will issue a zero VAT invoice. In that case you are obliged to include the purchase in your VAT return. However, if the purchase is wholly for your business you are entitled to claim a deductible for the same amount in the same VAT return.

Obviously registering for VAT means that on your sales to Irish customers you would have to charge VAT and remit that to Revenue through your VAT return. It depends on what your market is; Consumers or Businesses. Business can reclaim the VAT (as a VAT registered business). Consumers have to pay VAT, just like they would when buying in shops.

Hope this helps to clarify?

Cheers,
Rudolf289

Thanks Rudolf that's a fantastic response. I think my best course of action here is to not register for Vat until I hit the threshold and pay VAT at suppliers rate.

I won't be charged VAT on import here so if I do that?

Gloomtastic!

Kilboor wrote: »

Thanks Rudolf that's a fantastic response. I think my best course of action here is to not register for Vat until I hit the threshold and pay VAT at suppliers rate.

I won't be charged VAT on import here so if I do that?

Depends on whether you’re selling to businesses or consumers.

If you’re selling to businesses, wait till you hit the thre shold (although if you think you are going to hit the threshold in the next twelve months, register now as Revenue May back date your application, leaving you due for all the previous VAT).

If consumers, then register now, otherwise when you do hit the threshold, your selling price is going to have to rise 23%. (Unless you don’t think you’re ever going to hit the threshold).

CIARAN_BOYLE

Gloomtastic! wrote: »

Depends on whether you’re selling to businesses or consumers.

If you’re selling to businesses, wait till you hit the thre shold (although if you think you are going to hit the threshold in the next twelve months, register now as Revenue May back date your application, leaving you due for all the previous VAT).

If selling to businesses I'd register for vat as the customers won't care the price is 23% higher but the costs will fall too.

Gloomtastic!

CIARAN_BOYLE wrote: »

If selling to businesses I'd register for vat as the customers won't care the price is 23% higher but the costs will fall too.

This is where I always get confused over VAT.....

You set up your business and register for VAT. Apart from the first quarter when you can claim back all your set up expenses, every quarter after that you are paying the VAT man because your sales always exceeds your expenses (hopefully!).

So until you reach the threshold, you are paying the VAT man 23% of your gross margin when, legally you don’t have to. Am I correct in that?

Likewise, if you’re selling to consumers, where’s the incentive to cross the threshold when, if you do, you either have to increase your price by 23% or take a huge hit on your margin.

CIARAN_BOYLE

Gloomtastic! wrote: »

This is where I always get confused over VAT.....

You set up your business and register for VAT. Apart from the first quarter when you can claim back all your set up expenses, every quarter after that you are paying the VAT man because your sales always exceeds your expenses (hopefully!).

So until you reach the threshold, you are paying the VAT man 23% of your gross margin when, legally you don’t have to. Am I correct in that?

The thing you don't realise is that if you are selling to businesses a business only cares about the net price.

So if its an option to pay 1,000 no vat or 1,230 including vat a business customer won't care. Its 1,000 either way. They can claim the 230 back from revenue.

A consumer would care but most small businesses do their selling business to business.

If you are selling business to business heres an example showing why you might want to register even if you don't hit the threshold. In brackets are figures for a vat registered business. Outside brackets are figures for a non vat registered business.

Sale 10,000 (12,300)
Purchases 6,150 (6,150)
Vat liab 0 (1,150)
Profit 3,850 (5,000)

Gloomtastic!

^ Paying Vat makes you more profitable?

What about the Vat on purchases?

knipex

Gloomtastic! wrote: »

Depends on whether you’re selling to businesses or consumers.

If you’re selling to businesses, wait till you hit the thre shold (although if you think you are going to hit the threshold in the next twelve months, register now as Revenue May back date your application, leaving you due for all the previous VAT).

If consumers, then register now, otherwise when you do hit the threshold, your selling price is going to have to rise 23%. (Unless you don’t think you’re ever going to hit the threshold).

That does not sound right.

if you selling to businesses they will want to reclaim VAT but as your not registered and cannot provide a VAT invoice then they cannot.

Selling to consumer, they wont care. Even if you cross the threshold the price to them will not change significnatly, (unless you supplier is based in a country with substantially low VAT rate than Ireland) Yes you will be charging VAT but you will be taking it off the price you pay before adding it to the price you sell.. You could potentially price it in from day 1 if you wish..

Say your currently buying at €12 including VAT You mark up to €24 and sell

You register for VAT, now you buy at €10 (assuming 20% VAT in supplier country you mark up to €20 (same markup) and add Irish VAT brings it up to €24.60

rolion

What I found out on my past experience is that being VAT registered gives your business a better view.
Buying from suppliers that are always VAT registered and opening trade accounts, they always looked twice if I told them I am not VAT registered.

Selling to business clients ,again, they looked strange to me when told I am not VAT registered and very hard to deal with invoice with no VAT charges.

Most of the applications to banks and other third party asked for my CRO and VAT.

I've registered for VAT from first day, irrespective of the threshold just purely for the above mentioned reasons. Most of the time, i was just a collector and working for Revenue… every 2 months , as I was in a services business.

Good luck.

CIARAN_BOYLE

Gloomtastic! wrote: »

^ Paying Vat makes you more profitable?

What about the Vat on purchases?

Thats the reason for the extra profitability in my example.

The vat liability of 1150 is made up of vat on sales (2300) minus vat on purchases (1150).

Kilboor

Thanks everyone. I see I'm not so stupid in being confused then as to the best course of action!

RUDOLF289

Kilboor wrote: »

Thanks Rudolf that's a fantastic response. I think my best course of action here is to not register for Vat until I hit the threshold and pay VAT at suppliers rate.

I won't be charged VAT on import here so if I do that?

As long as your purchases are from another EU member state, you are not paying VAT on imports. If you are not registered for VAT, your supplier will charge you VAT on his invoice to you at the rate applicable in his country. That VAT will be a cost to you as you have no way of claiming it back. If you are registered for VAT your supplier will not levy VAT. You account for the transaction in your periodic VAT return, where you include the liability for VAT at the Irish rate but claim it as a deductible in the same return.

If you think you will exceed the tresh hold at some stage in the next 12 months, I would suggest to register for VAT. That way you will be able to claim VAT on all your business related expenses (stationary, computer, phone, internet and any other legitimate business expenses).

I would also recommend to take advice from an accountant.

Cheers,
Rudolf289

Kilboor

RUDOLF289 wrote: »

Kilboor wrote: »

Thanks Rudolf that's a fantastic response. I think my best course of action here is to not register for Vat until I hit the threshold and pay VAT at suppliers rate.

I won't be charged VAT on import here so if I do that?

As long as your purchases are from another EU member state, you are not paying VAT on imports. If you are not registered for VAT, your supplier will charge you VAT on his invoice to you at the rate applicable in his country. That VAT will be a cost to you as you have no way of claiming it back. If you are registered for VAT your supplier will not levy VAT. You account for the transaction in your periodic VAT return, where you include the liability for VAT at the Irish rate but claim it as a deductible in the same return.

If you think you will exceed the tresh hold at some stage in the next 12 months, I would suggest to register for VAT. That way you will be able to claim VAT on all your business related expenses (stationary, computer, phone, internet and any other legitimate business expenses).

I would also recommend to take advice from an accountant.

Cheers,
Rudolf289

Perfect thanks, I don't think I will cross the threshold but who knows My supplier is charging me VAT at the UK rate I think I will hold off registering.

nicrob08

rolion wrote: »

What I found out on my past experience is that being VAT registered gives your business a better view.
Buying from suppliers that are always VAT registered and opening trade accounts, they always looked twice if I told them I am not VAT registered.

Selling to business clients ,again, they looked strange to me when told I am not VAT registered and very hard to deal with invoice with no VAT charges.

Most of the applications to banks and other third party asked for my CRO and VAT.

I've registered for VAT from first day, irrespective of the threshold just purely for the above mentioned reasons. Most of the time, i was just a collector and working for Revenue… every 2 months , as I was in a services business.

Good luck.

Any chance i could pick your brain about something VRT/VAT related by pm?

sderiis

If you are registered for VAT in Ireland, if you submit your VAT registration details to your EU supplier he will issue a zero VAT invoice. In that case you are obliged to include the purchase in your VAT return. However, if the purchase is wholly for your business you are entitled to claim a deductible for the same amount in the same VAT return.

the_pen_turner

sderiis wrote: »

If you are registered for VAT in Ireland, if you submit your VAT registration details to your EU supplier he will issue a zero VAT invoice. In that case you are obliged to include the purchase in your VAT return. However, if the purchase is wholly for your business you are entitled to claim a deductible for the same amount in the same VAT return.

Is that a legal requirement. A few UK suppliers have refused to do that for me and I had to pay the vat and claim it back