Forum Categories › GENERAL VAT DISCUSSIONS › Total novice here with a question about vat › Reply To: Total novice here with a question about vat
Very generally speaking, VAT is charged on every transaction in a supply chain (there are exceptions). When a VAT registered business makes a purchase in relation to their business activities, they are entitled to recover from HMRC the VAT they have incurred. So although VAT is collected at every step in the chain, the true cost of VAT should fall on the final customer.
Taking your figures, and assuming that they include VAT, if you were VAT registered:
• you pay your supplier £17.50, but
• you can reclaim £2.92 VAT from HMRC
• you charge your customer £24.38, but
• you must pay £4.06 VAT to HMRC.
In addition, you would be able to reclaim the VAT incurred on other costs directly relating to the business.
Something to consider – who are your customers? If they are VAT registered businesses, when you register you may be able to increase your prices to £24.38+VAT=£29.26, as it’s likely that they could reclaim the £4.88 VAT from HMRC.
Bear in mind that this is a very brief and simplified overview of the general principles of VAT. Much more information about your business would be needed to be able to fully assess the impact of VAT registration.