Q
(Question? - sorry to hijack your thread)
Mandelbrot what is the situation then with a small business supplying a service?
If one charges VAT for supplying service, but realises then that they are unlikely to come close to a turnover of over €37,500 for that financial year (given the times we are in) does one just stop charging VAT or continue and simply reclaim all VAT at end of the year?
Many thanks,
m.sunny
If you charge VAT then you are obliged to remit it to Revenue (this applies even if you aren't actually VAT registered). The fact that you realise at some stage that you need not have registered due to low turnover is neither here nor there; since you have added VAT onto the cost of your service, it is not your money to reclaim. If anything, if you shouldn't have been charging them VAT, it is the customers who should get the VAT back (this is a concept known as unjust enrichment).
In the case you've described you can simply cease your registration for VAT from a particular date, on the basis that your turnover will not exceed the threshold. You will not charge / reclaim any VAT from that date on.
However, if you have claimed VAT back on purchase of equipment etc. you will be required to repay a portion of this VAT, as you are no longer going to be using these inputs for a VATable business...
Clear as mud...?!
So do I have to charge VAT and pay it to revenue, though I'm not registered?
Also, WindUp, those links don't drect me to what you were specicifally talking about..
No, you don't have to charge VAT unless you are 1) registered, or 2) over the threshold.
However IF you do charge VAT to customers, then regardless of your turnover or whether or not you're registered, you owe the VAT to the exchequer.
So do I have to charge VAT and pay it to revenue, though I'm not registered?
Also, WindUp, those links don't drect me to what you were specicifally talking about..
Wouldn't that mean I'd be able to sell goods cheaper than bigger shops?
Couldn't you just charge things the same price as places who do charge VAT and have a higher profit margin?
And why would you charge VAT if not registered?
Also, do you have a link to the actual government document that says this? I just need to be absolutely sure, thanks for the help by the way. I just have so often heard that it's illegal to sell goods and not pay VAT.
I think an illustration might help you to understand the situation:
(I am assuming you are going to have to pay VAT on the inputs for whatever it is you are selling to the retailers?)
IF NON-REGISTERED:
Lets say your materials cost you €50 + VAT (which is €60.50).
You work your magic and sell to your customer for €100 (no VAT if you aren't VAT registered).
Your margin is €39.50, since you can't reclaim the VAT on your inputs.
IF REGISTERED:
You can reclaim the €10.50 of VAT on your materials, so the cost of your inputs is €50.
You sell for €100 + VAT (€21), so that's €121.
However, if your customers are VAT registered, as most retailers / businesses are, then they will reclaim the €21 of VAT, so the cost to them is still €100.
Your margin is now €50 from the same transaction at the same prices.
This doesn't include the VAT you can claim on other inputs such as phone, diesel, equipment etc... if you are registered. So whereas you might think not "having to charge VAT" sounds great, it may well be to your financial benefit to be registered, if your sales are mainly to other businesses for whom the VAT isn't a cost.
The drawback is that you have to file VAT returns, and hand over the VAT you are collecting for the exchequer.
Hi mandelbrot,
Your example uses a supplier (non-registered) supplying to a customer (registered).
What if you are supplying to end consumers directly. Is the situation different?
i.e. I am a start-up supplying goods, but am not yet registered for VAT.
I am buying from a wholesaler (in Ireland) and supplying directly to end consumers online. Would it be beneficial to register for VAT in this case?
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