Sole trader and VAT

[JoeP]

Hi all,

I would like your opinion and experiences on my situation to make sure i am doing things the best possible way.

So i plan on selling online, have no idea how much profit i will be making if any in my first year. I looked into LTD but i think the best thing would be for me to become a sole trader as it is much more strait forward and simple.

Not to sure on the VAT matter. I know i dont have to register for VAT unless i earn over £60k or so, but i will be paying VAT on my goods i buy to sell on and would be nice to claim it back but then i have to charge VAT on goods i sell. How do you work out if it is better to be VAT registered?

Also, what is the reason as to why suppliers ask for VAT numbers when they are going to sell you wholesale?

Thanks in advance for your help!

[MikeH]

If you are below the current VAT threshold £67000 then you do not have to register. However, if approaching this figure then register in advace as it can take several weeks to register.

If below this threshold then the decision may be based on who your customers are. There are essentially 2 points to consider.

Firstly do you need to claim back VAT from suppliers? If registered for VAT you can claim back any VAT you pay to your suppliers. This may be of great benefit if your general purchases will be from VAT registered business that will charge you VAT.

Secondly, who are your customers? If your customers are VAT registered then they will be able to claim back any VAT that you add to the total cost of the goods or service you supply to them. However, if your customers are not registered for VAT or they are the general public then you will effectively increase your prices by up to 17.5%. If you operate in a price competitive market then this may be detrimental to your business.

Mike.

[JoeP]

Thanks for clearing that up for me.

Customers will be general public so i would like to keep the costs down for them so i guess i will stay off registering for VAT untill i have to.

Also, i have heard something about regisrering a LTD and using it as a doormat? Does anybody know how that works? Does it mean i could trade as a sole trader have have a LTD name?

Or would it be better to register a business name? If you register a business name i believe you have to state your name in all invoices?

I would like to trade as a company name and not personal name just need the best way around this.

Thanks for your help

[simonh]

Rightly or wrongly, being VAT registered can provide creditability for a business, particularly when conducting a trade online. Whether or not this has any affect with your particular plans is unknown as you did not state what you will be selling or who your principle suppliers are likely to be.

Reading between the lines, and in particular your decision to operate as a sole trader as opposed to limited company for reasons of simplicity, it might suggest that you would not welcome the administrative burden of having to maintain a VAT scheme for your business.