Any VAT experts here?

[Eddielizzard]

Please can you settle a dispute? I can't find this info online.

If a company buys something from a supplier who is not VAT registered, can they still claim back VAT on those supplies?

Backstory: I want to supply retailers, but I'm not VAT registered, so I think this doesn't go in my favour. However DH thinks they can still claim VAT back regardless.

Who is right?

No. To claim back VAT you need the invoice showing the VAT amount or the VAT number.

No as there will be no vat to claim back. But your prices are cheaper (gross) than someone who is vat registered so the overall cost to a vat registered customer is the same.

I see. Thank you.

So should that retailer sell to overseas customers, they have to take the VAT off and therefore lose out? What should happen in that case?

This is the problem I think I'll run into.

If you sell something for £10 your customer will be paying £10 with no vat added to reclaim.
If you were VAT registered you'd be charging them £12 where they would be paying more but then reclaim the £2 VAT
Either way they will be paying £10 for the item in the end.

So basically the shop has to know for overseas customers (to their online shop), for my product they can't show an ex-VAT price. They would have to manage my products differently from all the other VAT registered products, and retailers are used to managing this?

I have had a retailer say this is a problem and doesn't like dealing with suppliers like me. I'm trying to see whether it's worth registering for VAT (don't want to, as yes, it will push my already high prices up), or whether there's another solution (doesn't seem to be).

The vat threshold is 85£k as far as I know. There is no value to you registering unless your turnover is going to be this. Are you even selling a vatable product? Some things are exempt. Talk to an e-commerce accountant would be my recommendation.

Anything overseas can be a bit more complicated as you start running into reverse charges and things (depending on what countries) but only IF you and the customer are BOTH VAT registered in your countries.
If you aren't VAT registered then there will be no VAT for them to reclaim. There can be situations were it's beneficial to voluntarily register for VAT and this might include your situation (for example if you are making a product with a load of components that you're paying VAT on that you can't reclaim or recharge to your customers) but you're below the threshold. It might not, and there might be other ways around it.
It also depends on your product (for all I know your product is exempt anyway!) so I would definitely have a quick chat with your accountant as VAT can be a minefield.
PP are correct though no VAT registration no reclaim by customer.

They can show an excl VAT price, if you charge £10, it's £10 gross and £10 net and £0 VAT TO YOU.

Then, and this is more complicated as it would depend on what is the shop and the terms of your agreement with them which I haven't read, they might be required to add VAT if for example they have bought the product from you for 10, selling to the customer for 11 and now must charge VAT on 11 which is 1.20. But it depends on the agreement as if they're selling on your behalf then they just charge you commission and you pay VAT on that.

Sorry £2.20 not £1.20 but you get the idea hopefully

You don't charge VAT

So there is no VAT to reclaim

It sounds like their ecommerce platform isn't set up to handle this (which is pretty stupid)

It could also be code for they've found small suppers unreliable in the past

VAT is a complete pain so if you don't need to register I wouldn't

Other retailers should be able to cope with it so I'd explore that first

Of course they can't claim back VAT because you're not able to charge them VAT in the first place if you're not VAT registered.

For example, you sell a product (let's say a TV that has an RRP of £100). The RRP includes VAT. If you buy it in Curry's, technically you are paying £83.33 for the TV and £16.67 VAT (which Curry's take at the point of sale and pass to HMRC on your behalf). If a VAT-registered Business bought that TV, they can claim back this amount of VAT.

If the same TV was sold by a business that wasn't registered for VAT, technically they should only charge £83.33 for the TV in the first place. There is no law about only selling things at RRP though, so the chances are they would still charge the £100 RRP as to a consumer, there is no difference to the amount they pay. However, any VAT-registered business buying this TV here, wouldn't be able to claim back VAT as they haven't paid it in the first place - the whole £100 was the payment for the TV itself.

Of course if you're not registered for VAT, your invoices that you give to your buyers won't show a line of VAT.

OK so my understanding is that the retailer shouldn't charge VAT on my product as I'm not VAT registered. It's definitely not VAT exempt.

The overseas customer issue is thorny in that they have to pay their own country's tax and customs, but there's nothing I can do about that. They aren't paying UK VAT anyway.

VAT simply doesn't enter the equation at all, so selling to a retailer shouldn't be an issue. That this retailer said it was is probably code for they don't want to deal with SME's.

Thank you everyone!

If the retailer is vat registered they have to charge vat on your products. If you're not vat registered it makes you more expensive to them.
You buy in for £8.33 plus vat = £10
You need to make a profit so add 20% = £12
Purchaser sells on to their customer so adds their profit 20% plus vat = £14.40 plus vat £17.28

If you're vat registered it changes the calculation because you add 20% profit to £8.33 = £10 plus vat =. £12
Customer can reclaim the £1.67 and adds his 20% profit to your £10 net = £12 + vat so his selling price is £14.40 rather than £17.28

If you sell to a retailer and they are VAT registered then they have to charge VAT to the end customer.

Exactly the same as if you were VAT registered.

You sell product for £10. Retailer puts £1 profit on and sells for £11 plus VAT =£13.20. Retailer gives £2.20 to HMRC

VAT reg supplier sells product for £10 plus VAT = £12. Supplier gives HMRC £2. Retailer claims £2 back from HMRC. They then add £1 profit on and sell for £11 plus VAT (£13.20) the same as before.

Right this is exactly what the retailer was saying. So basically for me to get them to stock my products I'd need to give them a lower wholesale price to make up for the extra VAT charge, if we are to keep our prices similar. It's no good undercutting my customer and I do still need to sell myself. I don't mean price fixing, but if there's only 2 or 3 of us selling my very niche product, those retailers are not going to be pleased if I'm cheaper. They aren't going to want to market my products when they're not going to get a sale if customers do a little research.

This basically wipes me out from selling wholesale because I can't go any lower. It's already a stretch.

I’m not sure what you are saying.

using the your product is £10 figure.

At the moment you get to keep all £10 of that. You VAT registered customer pays £10

If you were VAT registered you would only get to keep £8.33. Your customer would initially pay £10 but then claim the £1.67 VAT back.

or you could increase your price to £12. You’d keep £10. Your customer would pay £12 then claim back £2

if your VAT registered competitor is selling your product for £10 then they are managing to sell it cheaper.

non business customers almost always find buying a product or service from a non VAT registered business of approx the same size cheaper.

The online platform will probably be caught by the new rules for online marketplaces (assuming you’re selling to the EU).

This means if your goods are under £135, the online platform becomes the ‘deemed seller’ and accounts for VAT on your behalf to the EU. You should confirm this though because it’s complicated and there are fines for getting it wrong / if not properly handled you would need to VAT register in the EU.

Even though there is no VAT, you need to keep detailed records because these sales will count towards your registration threshold.

Do you sell your products to businesses? If so, just ignore the VAT when pricing as they should be able to recover it. So £10 with no VAT vs £12 with VAT is the same to the customer. The cost to the customer is still only £10.

Yes, I understand now. Thank you!

Essentially I am making a non-wholesale product, and trying to sell through a retailer isn't really practical. At this point anyway.

Yes, I think essentially the issue is that a VAT-registered retailer would have to sell your products for 20% more than you do, in order to cover the VAT (or whatever the rate is in their country). Therefore, they probably know that they won't sell many of your product as it's more expensive than if their customers bought direct from you and therefore not worth the hassle for them.