• If you register for VAT, you will look more professional. You will appear to be more of an established company than a ‘newbie’ who is obviously under the £85k threshold. How important is that to you?

• Once registered, the fear is of course your competitiveness. You will need to add another 20% to your sell price, or increase to a level you are happy with which then absorbs some margin that you’ve enjoyed + knowing you’ve got to give 20% of it back to HMRC…. However;

• Don’t forget, for every 20% on your sales price you give back, you can now reclaim 20% on your product cost which is usually paid either on importing, or to a VAT-registered wholesaler/supplier within the UK (i.e Sales VAT will be your cost instead of Import VAT in this case).

• So, lets say your margin is currently 33%. To make the sum easy; your cost per SKU is £100, your selling price is £133. The VAT you have to give back to HMRC is £22.17 and your net sell price is £110.83 – ‘Oh No, that’s just eaten my profit and I’m now down to 10.1%!” – NO!!! You’ve forgotten about the VAT you can now reclaim! You will be able to reclaim £16.67 from your £100 cost which now brings your net cost down to £83.33 instead of £100. So the actual real loss from your competitiveness is much smaller than you first thought. You used to make £33, but now you make £27.50. However;

• How has it affected your % margin? The real funds are down slightly, but a net cost of £83.33 + 33% as per your original mark up = £110.83. The SAME exact price as you originally had with taking off the VAT. In simple terms, it does not matter too much for going VAT registered with regards to margins. They stay the same, and you will just take a small hit on actual revenue in this case £5.50.

• It’s not just about reclaiming VAT on the product. You are now also enabled to reclaim VAT on Everything your business buys. Travel Expenses/Fuel, Office equipment including software, Hardware, IT and development costs. There are so many things you are entitled to reclaim VAT on for your business which could go over and above removing any shortfalls on margin. This is where guidance from your accountant will step in.

• CASHFLOW – There’s a benefit to being VAT Registered for any business that isn’t flush with cash. Unless you’re lucky enough to sell your entire purchase order of stock within the same month, or even the same quarter, you’ll be paying out your VAT within the costs of importing or purchasing, but waiting until you sell the product in total before you get your cash back through the door. At least being VAT registered, you can re-claim the VAT element within that first quarter or, if you can register for Monthly vat returns to get it even quicker.

(All shipping costs were calculated pre-pandemic, but calculations on VAT sales vs VAT costs remain the same.)