Non-VAT-registered trader, supplying VAT-registered customer

Discussion in 'UK Accountancy' started by Philip Herlihy, Oct 15, 2013.

  1. I'm a small trader, not registered for VAT. Sometimes my customers ask
    me to purchase IT equipment for them. I understand that this means they
    can't reclaim the VAT on those purchases, as the accounting 'chain' is
    broken, but does it matter? Surely those purchases can be written down
    as business expenses anyway? I'm sure this is a naive question, but I
    don't know the answer!
    Philip Herlihy, Oct 15, 2013
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  2. Oops - I meant to post this in, which is a little busier than Hope this comment spares me the outrage
    applied to multi-posters!
    Philip Herlihy, Oct 15, 2013
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  3. Philip Herlihy

    Cliff Frisby Guest

    Well, you can just simply run an example through the maths to demonstrate
    that the addition of the VAT element *does* affect their bottom line.

    Or just apply reductio ad absurdum:
    If tax-deductibility (or capital allowances, if that's what you mean)
    renders the price paid for something irrelevant to the financial health of
    the business, then businesses (whether VAT-registered or not) wouldn't care
    how much they paid for stuff.

    But they certainly do care.

    So it isn't irrelevant!
    Cliff Frisby, Oct 15, 2013
  4. Ah - I think I get it. Tax takes only a proportion of profit, so
    reducing your overheads by reclaiming VAT does increase your profit.
    Philip Herlihy, Oct 16, 2013
  5. Philip Herlihy

    Fredxx Guest

    I'm aware that some builders sometimes act as agents for their customers
    so that their customer can claim their VAT (if VAT registered). As long
    as the customer's name is on the receipt or invoice, then you can pass
    on the VAT invoice for them, obviously retaining a copy, to reclaim the VAT.

    It's also a ruse to keep turnover below the magic threshold, as payments
    as an agent, on behalf of a customer, doesn't count towards the VAT
    turnover threshold.
    Fredxx, Oct 16, 2013
  6. Philip Herlihy

    AnthonyL Guest

    A VAT Registered business is VAT neutral - purely a collector of
    taxes. Any VAT charged is repaid to HMRC, and VAT paid is claimed
    back from HMRC, and thus VAT does not come into P&L.

    If you (non-VAT) buy a £100 vatable item then it will have cost you
    £100 + VAT. To not make a loss you will have to sell that at £120
    plus any markup. Your VAT business competitor can sell it for £100 +
    markup + VAT and the client will get the VAT back. I don't see why
    any VAT registered business would buy from a non-VAT registered
    supplier if the same item was available from a VAT registered
    supplier. Presumably you add some service.

    Of course the extra £20 becomes a business expense reducing your
    client's profits and hence tax liability.
    AnthonyL, Oct 17, 2013
  7. Most interesting - thank you!
    Philip Herlihy, Oct 17, 2013
  8. I recently picked a tree surgeon on that basis - he would have been
    significantly more expensive if he'd been VAT registered. I get it now
    - I was overlooking the fact that tax liability is only a proportion of
    profit, and the 'loss' to VAT does cost the customer money. I'm a bit
    wary of presenting some businesses with a Vat receipt from a supplier
    made out in their name and marked as 'paid' - best to reach a good
    understanding about this first, I think!
    Philip Herlihy, Oct 17, 2013
  9. Thanks, David and Adrian. I do get it now; it seems very straightforward
    now you've explained it to me!
    Philip Herlihy, Oct 18, 2013

  10. Right on both counts! (use in house, and the convenience of a single
    Philip Herlihy, Oct 18, 2013
  11. Just so!
    Philip Herlihy, Oct 18, 2013
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