Do I need to register for VAT? Any advice appreciated.

[OctoberMoon]

Hi,

I've been self employed for 2 years, very small business earning only a small profit. I'm a sole trader. The time has come to look into other sources of income and something I have wanted to do for a few years is to import baby/childrenswear and sell it online.

I have contacted some suppliers and i'm starting to make some progress, but some suppliers want my VAT registration number. I don't know the first things about it and if it's worth registering for VAT? Bare in mind i'll be a small business when I start out as I don't have more than £1000 to invest.

If I do register for VAT, what exactly is it for? Will it make it easier to book keep? Can HMRC see my spendings/profit etc?

Thanks in advance.

I'm not an expert (sorry ) but I would think that you would have to register for VAT when importing. I work in this area and we have a VAT number for various reasons - we have to pay VAT on the value of goods that we bring into the country, we have to charge our clients here VAT and then pay that on to HMRC, we have to declare EC sales as those clients don't pay VAT, etc.

I would imagine that the people you import from have their own VAT system running in a similar fashion and that is why they need your VAT number - to show that they are selling to someone registered in the UK and perhaps that means that they don't have to charge you their local rate of VAT, just as in our company where we don't charge VAT to people outside of the UK but require the VAT numbers of EC-based businesses to show this.

Baby & children's wear are zero rated for VAT purposes so it shouldn't have an effect on your prices. However as for book keeping and HMRC's view of your profit and expenditure - it doesn't make book keeping easier, it's just part of the book keeping if you need to pay VAT every month/quarter, and HMRC can't see anything other than how much VAT you pay when you have a VAT number. However I imagine you will have to submit an annual return for your company accounts, plus possibly payroll (not entirely sure how it works for sole traders), these are the kind of things you would have to do anyway so that your tax and NICs can be evaluated properly. Can't really escape that!

Call HMRC - there's a number for companies on their website, there are far too many options to go through but if you call either late morning or early afternoon (avoid first thing, lunch, and late afternoon) then you usually get through pretty quickly and they'll be able to inform you better.

PS Technically, actually, HMRC could do the calculations if you were paying VAT to work out how much money you are making, but I don't know how inclined they are to do this and once again your goods are zero rated so in theory you'll be liable for zero VAT.

The above is correct that children's clothes are zero-rated and registering for vat may help you with cheaper imports (both from EU and outside). The problem may arise if you still continue with your existing business as well. Any sales you make from there would need to have VAT added to them as well. On the plus side - input VAT (that is VAT that other businesses charge you) can be reclaimed from HMRC as long as the cost is business related. So VAT on packing materials, Internet costs etc can be reclaimed.

Have a look at the page I wrote for ebayers ...
members.ebay.co.uk/ws/eBayISAPI.dll?ViewUserPage&userid=talkinpeace

if you are dealing with Italians, they expect everybody to be VAT registered. Tell them that a UK business does not have to be.
As a sole trader, if you register, you have to charge VAT on ALL your income streams - potentially a bad thing

generally, if selling retail, its better not to be VAT registered if you can

and if importing from the EU there will be no import taxes

members.ebay.co.uk/ws/eBayISAPI.dll?ViewUserPage&userid=talkinpeace
working link

PS : VAT returns show your turnover, even the zero rated bits - and that goes on your tax return anyway

Thank you so much everyone, really helpful.

The business I currently run is very small, earning very little profit. I don't plan on continuing with it.

Talkinpeace will take a look at that link now, thank you. The plan is to sell the clothing via Facebook & a website, I am also renting a stall at my local farmer's market. If all goes to plan I will be looking for a small premises in the future. The suppliers I have spoken to are based in Spain and are saying that if I'm not VAT registered they will have to add IVA (21%) I don't know what this means! Another company said that if I don't have a VAT number that they can still sell to me but as "a natural person" followed by "invoice with your personal ID" again, no clue what this means! The last supplier said "We need your VAT number, if you do not have it then we will have to increase your invoice with the corresponding amount (VAT) again, a bit stuck on what that exactly means?

Is it illegal for me not to be VAT registered? What is the reason for registering for VAT?

In Spain and Italy, IVA / TVA / VAT (all the same thing) registration is compulsory for all businesses.
Here in the UK its not.
If you were VAT registered, they would bill you net and you would have to account for the VAT here in the UK.
AS you are not, tell them to treat you like a personal customer and add their IVA and that you will sort the VAT (or lack therof) at this end.

Have a look on the Ebay International selling board - it is full of really good general advice about importing too.