I import and deal in used Jap cars. Should I register for VAT

[millisp@millisperfor]

Dear All.
I'd be grateful for a quick bit of advice before I proceed with registering for VAT. I have already received all the info from HMCE but would welcome come opinions.
I set up my business during Feb 04. I sell used Japanese sports cars and 4x4s. Some I buy at auction in Japan and import myself (so have to pay duty and VAT on import), others I buy from the stock of my import agent and are already in the UK, duty and VAT paid. I have VAT invoices for everything I have bought.
My total taxable supplies since Feb have been £24000. I expect total taxable supplied to be in the region of £120000 between now and next April. This is clearly over the threshold and I would need to register. But, should I do it now or should I do it when I am more certain that the business is going to grow as I hope?
The way I operate is to buy the vehicle, get it MOTd, registered and so on and then sell the vehicle for an on the road price, so the customer knows what he is paying for. I know of another importer round my way who asks customers to make payments directly to the supplier in Japan and to make payments directly to HMCE here so the customer is effectively the importer. The guy who does this charges a whopping commission but avoids declaring taxable supplies as he doesn't ever own and sell the vehicle. I am right in thinking though that he would still have to declare VAT in his "commission" was above the VAT threshold as it is effectively a taxable service he is providing? Would there be any problem in me adopting this approach.
The only downside I can think of is that my customer would know who I am buying from and could then suggest people deal direct with my source to save paying me a commission.
I'm quite happy to register for VAT but don't want to get myself tied up with a big monster if you know what I mean!
Many thanks in advance for any opinions you can offer.
All the best.
Pete

[paultaylor@vatease.c]

The answer is quite simple.

As you are selling cars, the vast majority of customers would not be able to recover any VAT you charge them. Therefore, if you register for VAT the VAT you are required to charger would either make your cars more expensive or reduce the profit you make.

Regards

Paul Taylor
http://www.vatease.co.uk/

[millisp@millisperfor]

That's as I thought. But, it would mean I can recover the VAT on the cars I buy and can recover the VAT on pre-sale servicing and so on.

I know that the VAT I recover won't be as much as the VAT I have to charge the customer and pass on to HMCE but I'm not sure if will be significantly lower. As an example, if I import a car and it has cost me £4000 inc VAT then I could recover £596 VAT. If I have it serviced at a cost of £200, I can recover £35 VAT so it's cost £4200 but I recover £631 VAT so the cost is now £3569 - am I right here?

If I need to clear a profit of say £1000 then I need to charge the customer £4569 + VAT = £5369 and pass the £800 onto HMCE in my VAT return.

If I don't register for VAT then the car has cost me £4200 so I could sell it at £5200.

I'm wondering if there would be other things that I could claim back VAT on to try and reduce the £169 difference between the VAT I have to charge the customer to pass onto HMCE and the VAT I can recover. Am I right in understanding from the HMCE documentation that I can claim back VAT on telephone costs associated with my business? How about on things like diesel/petrol costs involved in driving from the port to home, to and from MOT centres and so on? I've bought a PC for £700 purely for business use which I guess I can also claim back VAT on.

Thinking about what this other guy has done whereby he gets his customers to pay direct to Japan and to HMCE when the car arrives - if I were to go a similar route and wanted to clear £1000 profit on each car then I would have to charge the customer £1175 if I was VAT registered. But by going this route I may not need to register anyway as I would expect total taxable supplies by providing a service like this to be well under the £58000 threshold.

What's making it hard for me to decide is that if I wish to sell 2 to 3 cars per month there is no way I can keep taxable supplies below the threshold so I guess I have no choice. I need to decide then whether I should do this NOw at a time when my taxable supplies since Feb are £24000, rather than in a few months time which would mean me having to pay a load of tax backdated?

Sorry to ramble on - I'm really just spewing out what is going on around in my head at the moment!

Many thanks again

Pete

[millisp@millisperfor]

It's at times like this that I want to ask my Dad, Theo Millis, questions - he was VP Taxation at American Express until he passed away a few months back. I'm sure he's still keeping an eye on me though.

[JK]

Pete

When you think you may have reasonable grounds to believe you will exceed the VAT regn threshold (£58,000) within the next 30 days then you will have another 30 days to notify Customs of this and become registered from the date on which the reasonable grounds first existed. Formal tax invoices should then be sent to your customers within 30 days of receipt of your new VAT regn number. However, you will have to start charging VAT from the date you became liable to VAT register. From a practical point of view you would have to include VAT in the value of your invoice and tell the customer that they have been charged VAT but will receive a proper VAT invoice once you have your new VAT number. Remember you won't be backdating any VAT on past supplies since VAT is only due when you become liable to VAT registeration. However, you can claim back VAT on your costs (for goods you can go back three years prior to VAT registeration and on services you can go back 6 months). You must keep evidence of the invoices and be prepared to prove that these were incurred for your business only. All in all I think you should VAT register as soon as you breach or know you will breach the VAT threshold. You can claim VAT back on your petrol by keeping records of your business mileage and claiming that back only, otherwise you can pay a scale charge of say £40 p/m to Customs and then claim back all of your VAT on petrol whether its for private or business use. You would have to keep petrol receipts as evidence. However these are rarley checked in detail by Customs. You can effectively have the VAT on any costs directly asscoiated with your business.