Don't Make This Mistake with VAT - You'll Save Thousands

[@RS-uz5mc]

VAT is horrible for small businesses in the uk. Its a very punishing tax, especially if your business is in a sector where there is nothing to offset from stock purchased, or in a sector where margins are very tight and you can't just add the vat to your prices. It stops business growth and has causes so many small businesses to close in the medium term.

[@zaraahmed9463]

This is brilliant. This is the most informative and real life video on VAT I’ve seen. Thanks

[@shimmymorris1]

Glad it was helpful!

[@Qorbanie]

Amazing video mate. So what’s the suggestion with charging it / pricing it in. Do you eat the cost or add it to final price? Cheers.

[@shimmymorris1]

it really depends. The best thing to do is add it on, a lot of people can't afford to eat the cost

[@milenasings]

Ok, could you make a video about Etsy and VAT please. It is so confusing for me, I am having a hard time figuring out the profit. I have my listing set to $24.95 customer than sees it as $29.95, because etsy applies taxes and stuff. It is so confusing as Printify charges me VAT already, then Etsy charges processing fees and vat. My head is literarily hurting trying to figure out if I’m making any profit at all. I also don’t want to have a shirt that costs $30 where competition is selling it for far less.

[@shimmymorris1]

Yes it's such an annoyingly confusing topic. I get confused thinking about it too! I will try and figure out a way to make an easy to understand video around it.

[@tomowen9412]

Was there ever a video made for this?

[@FANTAFRUITYTWIST]

Great video! I have a question about a way to minimise vat paid. It sounds illegal so I’d really appreciate if you could help me. The scenario: Company A which is VAT registered, purchases goods from a wholesaler for £100 incl. VAT. Company A then sells the purchased goods to Company B (which is not VAT registered) for £1. Company B then sells the purchased goods to consumers for £120. Company A claims back the 20% VAT spent when purchasing the goods from the wholesaler (£20). Company A pays £0.20 in VAT on the goods sold to Company B. Company B pays no VAT as they are below the threshold and keeps all the profits. In this scenario I own both Company A & B. The purpose of doing this is to increase profit margins as the VAT from the wholesaler can be claimed back and little to no VAT is paid. Is this an illegal way of minimising VAT Tax?

[@shimmymorris1]

i'm not an accountant so can't be sure, but this sounds highly illegal. I would consult a tax professional if I were you

[@WIELDUK]

Could you possibly do an update on this video. I am based in the UK and selling predominantly to the US market using printify to fulfil my orders, my Etsy shop is less than 1 year old so just getting started. I get charged VAT on pretty much everything from the sale itself to all the fees Etsy charge and it’s killing my profit what is the best thing to do. Also I really like your videos and the honest transparency keep up the good work thanks

[@anoushka_a]

Thanks for the video Shimmy. Question : when we import goods aren't we going to have to pay VAT on the goods at import stage so if we don't charge VAT to the customer aren't we losing that 20% extra we paid on those goods?

[@shimmymorris1]

You will have to pay on import which eventually can be claimed back when you VAT Registered. It's not nearly as much as you would be paying if your paid VAT on the revenue.

[@anoushka_a]

Shimmy Morris Thank you :) I watched a JS video which said you need to have a VAT number & pay VAT the moment you import your goods through customs. They made it sound like you can't import without a VAT number. I'm guessing that's incorrect & is only the case if you are planning to claim VAT back & charge on revenue? So you're advising to import, pay the 20% VAT (as sole trader or company not yet registered for VAT) and then don't charge VAT on listings until we have to once we reach £85k turnover at which point we can claim back a percentage of the VAT we paid on everything over the last couple of years? Sorry for such a long comment it's just hard to get a clear answer on the UK /VAT position for Amazon. Thanks for your help x

[@shimmymorris1]

@@anoushka_a You definitely do not need a vat number to import.

[@GaniAbdi]

thanks for the video! I recently stared doing retail arbitrage on amazon. Questions i know atm im paying vat 20% is that taken of the product profit? or the total product cost (£19.99) please do let me know!

[@shimmymorris1]

Your welcome!! VAT is taken off the revenue not the profit which is I why I always recommend not registering for VAT until you really have to!

[@gobeuactive]

Hey, thanks for this, are you still doing free consultations? The link didnt work. Im interested in your services and also have bus re tax and vat.

[@belsayshootingground]

If you look at just one purchase and sale, it can help you understand it a little easier. VAT looks like this; An Item bought cost you £100 + 20% vat = £120 Add profit to that £100 item of say £25 for arguments sake = £125 + 20% VAT you now have to charge = £150 total sale price to make profit and pay vat. First vat you paid was £20. Second vat you charged was £25 Take the first vat away from second vat and there’s what you owe the government. You owe the government £5 for that sale when your quarter is up. This is my understanding of it. I could be entirely wrong. If the item you bought had no vat to pay on it. There’s nothing to claim back. So you will have to pay the government the full 20% vat when you sell the item unfortunately. If you buy a tool for your business and don’t sell it. Then you can claim back the 20% for that quarter. But if you claim back the vat. When you finally sell that item in the future, you have to charge vat, even if it’s 10 years later. It’s good to roughly know this and record it as you sell, so you know what to save to pay the tax man every 3 months and have no surprises. Don’t be under any illusion, you are a tax collector when you go VAT registered. You need to pay a good accountant keep the vat numbers right. It’s expensive being a tax collector, really, the government should pay you for doing this work for them, but no, they usually demanded you pay a chartered accountant which is expensive. If you get close to 85k at month 12 just shut down and go on holiday. It will cripple you. Unless you plan on making 250k a year

[@WatchingTheo]

Equally if your main customers are businesses, being VAT registered could be better as businesses you sell to will want to claim back the VAT from your sale.

[@shimmymorris1]

right, but if you're not vat registered, you don't have to charge vat and your item will be cheaper than others who are charging vat...

[@charliem3686]

B2B is a different ball game, the business buying the goods (assuming they’re also VAT registered) wouldn’t mind paying for a product for say £120 as they can claim back the 20% vat on this, vs buying a product from a business who are not vat registered and charging £105. B2C of course in this case the consumer cannot reclaim the vat and would go for the cheaper option.

[@branxotic4563]

you are right I did this mistake and my business went compeletly in loss.

[@shimmymorris1]

damn!! yea this happened to me in one of my businesses

[@Brayco864]

You are aware you can pay approx 8% VAT up to £220,000 turnover BUT you can’t claim any VAT back on purchases..... please check this out with an accountant before taking this as red.

[@shimmymorris1]

Yes you can,. We do this. But it's not 8%. It's dependant on your niche. Some are 6%. Good spot, I should've mentioned it!

[@KarimBilal1]

Could you send a link or reference to this please?

[@mrifatabbas1281]

Hi Shimmy, Thanks for this informative video. How This 85K GBP trashold work in 🇬🇧?

[@stex83]

great video and great advice. However what if I go over the threshold for only 1 year and then I'm sure I won't after that?

[@shimmymorris1]

you should be able to deregister if you don't continue to meet the threshold

[@Sheep316]

HI Shimmy thanks for making the video, very useful. Just a quick question. When you go vat registered with Amazon, will they automatically deduct the 20% from the overall sale price?

[@TwinTimber]

no you collect vat from the customer and then pay it to revenue. the customer pays vat

[@shimmymorris1]

no, you have to pay the VAT yourself... it's not automatic

[@Sheep316]

Thank you for the response guys. I would imagine once you go VAT registered an account is pretty essential? Nearing the threshold now sadly haha

[@TwinTimber]

@@Sheep316 Split the Company into 2 different companies, you will need to go LTD and then you can split your stock into 2 different companies.......... or get your wife or anyone to set up as a Sole Trader and sell the stock to the sole trader. you can sell the merch to the sole trader at a tiny fraction so to keep her way way under the threshold of VAT.. if you go VAT reg you will go under. Its just a matter of time....!! Big companies always have many companies for a good reason :) you cant personally own a LTD company and be a Sole trader... but you can own many LTD companies or get a family member to be a Sole trader.... then you will have to do 2 sets of books and you will need to pay your accountant twice... so you can learn to do your books which is not too hard to do... remember you need to cleverly split your stock. for example, if you where selling electronics, you cant really split the stock 2 to and set up 2 ltd companies, but if you where selling car parts and mobile phones, then you could split the car parts into 1 company and the mobile phones into another one. but you can sell the stock to the sole trader which maybe easier

[@indigoNine]

May I ask if I need to register for VAT if I am selling from Asia to UK customer? (New business with no revenue)

[@shimmymorris1]

I believe foreign sellers do need to be vat registered but I would double check with an accountant.

[@sonya9183]

I only ship to US and Canada from Canada and state that in my description and on my shipping settings. Someone from Australia and another person from England purchased items from me for over $100.00. I refunded them the money but before I could send the refund through I had to accept that I would pay a VAT tax for each purchase of $25.00 ( 50.00 for both) I don't have an Etsy business and rarely sell anything on there. I'm thinking it's one huge scam.

[@shimmymorris1]

that doesn't seem fair at all! Have you reached out to esty?

[@sonya9183]

@@shimmymorris1 I spoke with someone with Etsy yesterday and he said that I don't have to pay those fees now. It's a weight off my shoulders.

[@Clarke2316]

Problem I have is that im at 55k revenue (rolling 12 months) but worried about getting to that 85k threshold as my business because the profit has been barely 20k, if i go over the 85k my sales on my ebay will plummet adding extra for VAT. Barely gaining a wage and im pretty close to that threshold.

[@shimmymorris1]

To counter any loss you would have to up your prices to reflect VAT. It looks like you're currently performing at a 36% profit margin. That's really good. if you got to 85k your profit should go up to around 30k. But definitely up those prices as products start to get more popular and more sales.

[@Clarke2316]

@@shimmymorris1 Thank you for the response, if I can maintain a level where I'm just under the 85k with around 30k profit I would be happy with that, work from home and its just me working on it. I do my own accountants so its something to think about with an accountant if i go over that threshold and see if its worth it financially. Problem is i buy something for say £100 and I sell it for £150, minus fees/postage your looking at £30 profit so my revenue is high but this is not the case for every item thankfully. Some are better than others. Thanks though for your help!

[@TishaPruthi]

Hey Shimmy, thanks for the great video! What’s the vat rate for imitation jewellery business?

[@shimmymorris1]

honestly, I would ask an accountant to be sure as I don't know

[@PJMcInerney]

I am pretty sure its 20% - same as normal jewellery business

[@ArcanePath360]

Why can't I find BUYING VAT issue videos? I placed a bid on an item and then got a confirmation e-mail with small print saying "20% VAT will apply" - WTF? I wasn't aware that buying a second hand item had VAT applied? Why wasn't I told about it up front in the listing? Is this new? I never noticed it before.

[@shimmymorris1]

Maybe this person is VAT registered so had to charge you VAT...

[@ArcanePath360]

@@shimmymorris1 Thanks. I spoke to him and he said there will be no VAT to pay. So I don't understand why it says "20% VAT will apply" next to the bid price in my confirmation e-mail on my bid. Unless they mean it's already been applied and the folks at ebay are illiterate.

[@babygirla6630]

Thanks for the video! Ebay have asked me to register for Vat but I haven't got receipts for stock because I purchase it at carboot sales or facebook marketplace. What would I do please let me know thank you

[@shimmymorris1]

If you're not over thresh hold you shouldn't have to register to VAT

[@JG1293-x2t]

how long does it normally take to officially get vat registered on paper, i heard it can take months to officially be registered

[@shimmymorris1]

shouldn't take that long... but i recommend speaking to your accountant

[@silviaborsa2123]

Hi Shimmy, I would like to ask if a customer who already bought the goods from me and he is asking for VAT invoice and I am not VAT payer yet? What I will do? Thanks.

[@shimmymorris1]

tell him you are not VAT registered and he was not charged any.

[@XactiraCS]

I still can't undestand, can we claim the VAT of our business purchases being not VAT Registered? Or we need to register to the VAT to be able to claim them?

[@shimmymorris1]

You need to be VAT registered to be able to claim

[@kevinsyd2012]

One of the most cack-handed and confusing presentations on VAT that I have heard.

[@shimmymorris1]

thanks, it's a confusing topic

[@sammyboy2783]

im interested with getting started with droppshipping but im worried about taxes, what do u recommend the first thing i do ?

[@shimmymorris1]

why are you worried about taxes? If you'll be doing it through a business you need to pay when you get profit, if you're doing it without a business then Don't worry at the beginning. But most importantly, find an accountant that you can get expert advice from.

[@Jimmycase230]

Ive ran a eBay business for a 5/6 years and have never understood VAT until now . If I submit my next tax return with a 85k plus will this then take me to a VAT Section and inform me to register? ( I don’t have an accountant ). I spend a lot on product but don’t make massive amounts of profit so this will really affect me financially. I’ve only ever concreted on profit earned and payed tax on that.

[@gary-l-rfc781]

How did you solve this? I’m in the same position as you now and struggling to get my head round it all.

[@Jimmycase230]

@@gary-l-rfc781 still not sorted it mate , I think the answer is get a good accountant. once my books are straight I will get one

[@umairahmed9593]

Do i deregister myself as VAT? or should i keep it

[@shimmymorris1]

It totally depends on your situation, if you don't need it, then deregister if you can

[@supercarjude7201]

Hiya, Do you know if property developers have to pay VAT when they sell a new build property?

[@shimmymorris1]

I do not, best to ask an accountant.

[@PJMcInerney]

I believe sale of residential property is zero rated

[@imtiazali4966]

Bro in ebay there is an item which i have keept in my cart. And the dilivery will be made from usa to uk. but before checkingout it's showing that the vat amount is included, and for more details, when i clicked on details,its showing that i need not to pay additional custom charges. Is that means when the item will be shipped to UK from US, in UK no custom charges will be applied...???

[@shimmymorris1]

I'm not 100% sure and don't want to give the wrong advice. I'd recommend asking an accountant or someone who specialises in importing

[@paulogoncalves2502]

What if I am a seller but I am not registered on Vat and very product I buy from the suppliers I pay vat, but I don’t charge vat to my end customers? Could you please clarify that for me ?

[@shimmymorris1]

it just means you'll be paying VAT and not claiming it back

[@ThunderTiger0801]

How does this work for me as a seller in the EU when I was dropshipping to the UK in 2020? I heard from a few that I would only have to pay VAT if I crossed the threshold and from others that I would have to pay from the very first sale I made

[@shimmymorris1]

if you’re not in the UK I believe you have to be VAT registered regardless

[@mahbadabdulla7711]

i dont want to put VAT on my shopify businesses but royal mail is saying i need this to make EU orders. What do I do now?

[@shimmymorris1]

Brexit is changing a lot of things, i suggest you speak to an accountant regarding what to do, they'll know far more than me

[@essi4107]

Hey. So when you get to 85k sales. Would you then be paying vat on the 85k (so basically an accumulated vat) or would the vat be on any new transaction after the 85k mark?

[@shimmymorris1]

you wouldn’t be paying on the money leading up to become VAT registered.

[@waqarismail1838]

What is the criteria If I am selling 150,000 USD per anum in US amazon market , and company registered in UK?

[@shimmymorris1]

You would need to be VAT registered but if that's your turnover, I recommend hiring an accountant

[@SelfpredictionCombat]

if I claim back on 4 years worth of VAT do I have to pay VAT on those same 4 years worth of earnings

[@shimmymorris1]

nope... from what i've been told

[@SelfpredictionCombat]

@@shimmymorris1 thank you Shimmy 👌

[@Morganyh]

im just gonna move to BVI

[@ORNAMENTS_CLO]

Bro I just started my ebay business and got my first sales but on the shipping form its says Tax ID and VAT number but I dont have those what should I do? Cause the buyer lives in France

[@shimmymorris1]

awesome!! surely you can leave them blank?

[@ORNAMENTS_CLO]

@@shimmymorris1 can I?