"You are entitled to claim the money back if your firm is VAT registered"
Unfortunately, we all have to pay it and wholesalers are no different. Here we look at tax issues surrounding your supplier and what you should be aware of.
VAT is, of course, is the most common tax you will come across when dealing with your wholesaler. VAT is charged by suppliers of goods and services, and wholesalers certainly fall into the former category. As they are not entitled to any exemptions or a reduced VAT level, wholesalers will charge the standard rate of 17.5 per cent on your purchase.
What you must be aware of is the fact that many wholesalers price their goods without VAT, so you may be under the impression that you have a brilliant deal when, in fact, you will have a 17.5 per cent charge slapped onto the top of it.
Therefore, the 4 widescreen televisions you buy for just £1,000 will in fact set you back £1,175.
“From my experience, it’s fair to say that many new traders do forget that the prices displayed by wholesalers won’t include VAT,” says wholesaling book author Richard Grady. “I know of a couple of people that got very excited at the incredibly low deals on offer and got a shock when they got to the till and found another 17.5 per cent added to the cost.”
Although you are obliged to pay the VAT on these, and indeed any other, goods, you are entitled to claim the money back if your firm is VAT registered. Input tax (the VAT you pay on raw goods) can be claimed back as part of the legitimate expenses that your business runs up – if you regularly pay more VAT than you collect you can claim this money back on a monthly basis by filling in a return.
To become VAT registered, your firm’s turnover must exceed £55,000 a year, although this figure has risen considerably in the last few years.
These increases have been aimed at helping new businesses that cannot deal with the burden of filling out continual VAT forms. However, although small firms often grumble about VAT, you can often save money by registering for it and many businesses voluntarily put their name forward even if they are under the threshold.
So, if you are VAT registered and you keep in mind the charge when purchasing, you will be able to shape your budget accordingly to ensure that your cashflow is unaffected.
