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I have a small e-shop and my UK registered company is not VAT registered. I am buying sprays from supplier (UK company also) but he has given me quotes without VAT, but I think I need to pay him prices INCLUDING VAT, since my company is not VAT registered (if it were, I could claim the VAT back).

For example the price he has given me is £10 excl VAT. From my impression is that I need to pay £10+VAT to him but I will sell it to my online customers without VAT.

Can someone explain me what is the situation?

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  • You can reclaim VAT only if registered for VAT.
    – DumbCoder
    May 12, 2015 at 15:14

4 Answers 4

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It's quite common for VAT-registered businesses to quote ex-VAT prices for supply to other businesses. However you're right that when you make an order you will be invoiced and ultimately have to pay the VAT-inclusive price, assuming your supplier is VAT registered. If you're not clear on this then you should check since it obviously makes quite a difference.

Since your business is not VAT-registered you cannot charge VAT to your customers.

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You only pay VAT if you buy from a VAT-registered company; if they are not registered, you don't pay.

So, thinking about your supplier, if they are VAT-registered they will charge you VAT, if they are not they won't. The buyer's status makes no difference, the seller doesn't get involved in whether the buyer is able to reclaim or not (based on their VAT-registered status).

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  • Oh, I may have misread the question. You're right though! If the supplier's not VAT registered then you can't pay him +VAT. @George Leo, has the invoice got a VAT number on it?
    – dvniel
    May 12, 2015 at 15:43
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If an item costs £10 excluding VAT, and you buy it from a VAT registered company, you will have to pay £12. You sell it for any price you like, and you don't add VAT.

Let's say you set the price at £15 and sell 1000 items for £15. You take £15,000, you spent £12,000, you make £3,000 profit in your pocket and you'll pay taxes according to your profits (£3,000). It doesn't really matter that VAT was involved, it just affects the price that you pay.

If you mostly trade with private customers and not with companies, being not VAT registered is a good idea, since by not having to add VAT you can keep your prices lower. It's different if you trade mostly with VAT-registered companies. In that example, if private customers are willing to pay £15 but not more, if you were VAT registered, you couldn't just charge £15 + VAT = £18, because your customers would stop buying. So you'd have to charge £12.50 + VAT = £15 and make less money.

But if you sell to a company, it doesn't make a difference to them if they pay £15 without VAT or £15 + VAT = £18. You have to send the VAT to HMRC, but you can subtract the £2,000 that you paid yourself, so you make £2,000 more profit.

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It looks like there's some confusion about the purchase price and reclaiming VAT.

You should pay your supplier the total amount (£10 + VAT in this scenario, so £12) - look for this figure on the invoice or receipt. The supplier doesn't normally expect you to work this out for yourself, so I'd be a little surprised if it's not on there?

As Dumbcoder's said, you'd then be able to claim the VAT back from HMRC if you were VAT registered. But seeing as you're not, then you don't need to worry about claiming it.

And as for selling the product without VAT, you can (and probably should) increase the unit price to cover the extra cost, otherwise you'll be operating at a loss.

Hope this helps!

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