Registering for VAT: Imported stock where VAT already paid?

[soma]

Hi,

I have a business which is not VAT registered as it has been well below the VAT threshold of ~€70k sales or ~€40k imports.

However, most likely we will start exceeding the VAT thresholds in the coming months so we will have to register for VAT. My question is this:

If I have about €10k in stock which I have imported from from other european countries, for which VAT has been already paid to those countries at local applicable rates, how are the sales of those goods in Ireland treated re:VAT?

If I had to pay VAT twice, they would be sold at a loss. Waiting to register for VAT until all that 10k is sold is not realistic as stock will continue to be bought etc.

Is it possible to somehow 'separate' the stock into VAT-paid and VAT-liable?

 

[jack2009]

you are not paying vat twice you are paying vat once and collecting vat on sale of the goods when they are sold. Ie when you become refistered for vat your net sales figure remains the same.

 

[Paddy199]

When importing goods, always register for VAT, give your VAT number and you will recieve the goods without the charge of VAT.

You then charge the applicable Irish VAT on the sale. The customer pays this VAT - you only collect it on behalf of Revenue and pay it over.

 

[Rudolf289]

Hello Soma,

Have a look at the two websites below. I believe you may be able to claim back the VAT you paid in other EU countries, once you are registered for VAT in Ireland, even if the transactions pre-date your VAT registration.

http://www.transfinance.eu.com/
http://www.tmf-vat.com/

Be aware it is a time consuming process, but at 10K you probably have paid in the region of 2K in VAT in other EU countries.

As already stated by Paddy 199, you remit the VAT on your sales to Revenue. You can apply to pay VAT on the basis of "Cash Received" (applies to companies with less than 1M turnover). You will need to a/c for the VAT on your EU purchases in your VAT return, however, because you are allowed to claim a deductible input for VAT on EU purchases, you claim back the VAT due on your EU purchases in the same VAT return, so your purchases will be VAT neutral (Debit minus credit = zero).

Best of luck with your new venture.

Best regards,
Rudolf289

 

[soma]

you are not paying vat twice you are paying vat once and collecting vat on sale of the goods when they are sold. Ie when you become refistered for vat your net sales figure remains the same.

Bought the goods from a european country, paid VAT to said country. That's Once.

Register for VAT.

Sell the same goods mentioned above. I now owe the government 21% VAT. That's twice.

I am unclear if I can reclaim the original purchase VAT as this company would not have been VAT registered at the time of purchase - and anyway can you imagine trying to recoup VAT from three different european countries?

When importing goods, always register for VAT, give your VAT number and you will recieve the goods without the charge of VAT.

You then charge the applicable Irish VAT on the sale. The customer pays this VAT - you only collect it on behalf of Revenue and pay it over.

Hi Paddy, thanks for the input but I do understand how VAT works (I have/had other businesses). I'm just talking about a specific case where I feel these goods are in a kind of 'limbo' where VAT is concerned.

 

[mathepac]

... Hi Paddy, thanks for the input but I do understand how VAT works ...

It doesn't sound like you understand, but I'll explain.

Bought the goods from a european country, paid VAT to said country. That's Once. ...

Correct and as you were not registered for VAT you cannot reclaim this VAT, however your purchase cost is the VAT inclusive price you paid.

... Register for VAT.

Sell the same goods mentioned above. I now owe the government 21% VAT. That's twice. ...

Wrong, major fail, your bad.

The sequence is :

• Register for VAT.
• Sell the same goods mentioned above, plus VAT @ 21% of the sale price
• Collect money from customer
• You now owe the government the 21% VAT you collected from the customer

That's still once as the customer gives you the VAT money to pay over - there is no VAT cost to you on the sale.

When you come to calculate the gross profit on these sales, the calculation is :

(Sale price exclusive of VAT collected) - (Purchase cost inclusive of VAT paid) = Gross Profit on Sale

So while the sale of these items may be less profitable, the VAT is only paid once by you (on the purchase).

 

[Paddy199]

Soma,

As Mathepac says, the customer pays the VAT on your sale. You just collect it for the government and pay it over to Revenue.

You only pay once, and if you were registered for VAT, you only pay VAT on the 'Value added' to the product.

Patrick

 

[soma]

Lads, you're getting caught up in semantics here, and not looking at the bottom line.

I buy something from Holland while not VAT registed. For simplicity, wholesale price €50, RRP €100.

I pay Dutch company €50 + 19% VAT = 59.5. VAT not reclaimable.

I sell this in Ireland, while still not VAT registered, gross profit is 100 - 59.5 = €40.5

BUT if I register for VAT before the sale - yet after the goods have been purchased and VAT paid abroad - the RRP stays the same (I cannot just up the price - the RRP is fixed) so the GP becomes:

100 - 59.5 (incl. VAT collected by Holland) - 17.36 (VAT collected by Ireland) = €23.14

Two countries just took VAT chunks out of the RRP during this 'limbo' period.

 

[jack2009]

Lads, you're getting caught up in semantics here, and not looking at the bottom line.

I buy something from Holland while not VAT registed. For simplicity, wholesale price €50, RRP €100.

I pay Dutch company €50 + 19% VAT = 59.5. VAT not reclaimable.

I sell this in Ireland, while still not VAT registered, gross profit is 100 - 59.5 = €40.5

BUT if I register for VAT before the sale - yet after the goods have been purchased and VAT paid abroad - the RRP stays the same (I cannot just up the price - the RRP is fixed) so the GP becomes:

100 - 59.5 (incl. VAT collected by Holland) - 17.36 (VAT collected by Ireland) = €23.14

Two countries just took VAT chunks out of the RRP during this 'limbo' period.

The previous posts were assuming you would have to change your RRP!

Can you get Dutch company to issue you with a credit not for the stock that you hold at the time of registering and then reinvoice you with no VAT charged?

 

[mathepac]

The previous posts were assuming you would have to change your RRP! ...

Well in my case I didn't know there was an RRP as part of the problem.

OP took additional profit when unregistered by selling at the RRP but not charging VAT. So IMHO VAT registration may not be the problem, maybe it's short-term opportunism.

 

[soma]

So IMHO VAT registration may not be the problem, maybe it's short-term opportunism.

No, it was a proof of concept that X product could sell at Y price in sufficient quantities even during tough economic times.

The concept is now proven so the business can be (relatively) safely taken to the next level.