Reply To: VAT Impact of Selling Goods on no-commission basis

Forum Categories GENERAL VAT DISCUSSIONS VAT Impact of Selling Goods on no-commission basis Reply To: VAT Impact of Selling Goods on no-commission basis

#56209
Trevor S
Participant

Provided that your brother has never been VAT registered and hasn’t exceeded the registration threshold yet, he could apply for voluntary registration retrospectively. HMRC’s policy on handling such applications is here: https://www.gov.uk/hmrc-internal-manuals/vat-registration-manual/vatreg21300.

The supply chain is unaffected, as you would still be an undisclosed agent. You brother originally bought the goods.  So, subject to time limitations (see: https://www.gov.uk/vat-registration/purchases-made-before-registration) and still holding VAT invoices from his supplier, he would be able to reclaim the VAT on his purchase. The £600 you paid him is for the sale of the goods on to you. Following registration he would have to pay HMRC the £100 VAT content of this, leaving him with £500. He can issue a VAT invoice to you, which allows you to recover that £100 VAT. You will still need to pay HMRC the VAT content of your £700 selling price. The overall benefit is the value of the VAT on your brother’s purchase. Your brother will be worse off from the registration (by £100 less whatever VAT he paid his supplier), while you will be £100 better off.

But, he can’t just register for this transaction, and he can’t do a retrospective voluntary deregistration. He will have to pay HMRC VAT on all of his business’ turnover since whatever date the voluntary registration is backdated to. Whether that’s worth doing is likely to depend upon factors such as how much other business he does, whether his customers are VAT registered, what proportion of his expenditure includes VAT and what his margins are.