5% extra, for using a credit card

[opps]

I don't know why anyone would want to run a business with a turnover of £100k. Wouldn't you make more money if you reduced it to £85k and deregistered for VAT? You'll be currently handing 17% of your profits straight to the government.

All unless you have some complicated VAT arrangements of course, which is possible with some animal foods but not normally pet food.

Every means of selling costs something. But credit card fees seem very hefty, and the government seem to be going out of their way to make it as hidden as possible.

I kinda get your point... but it would have been 20% not 17% and the 20% would have been on sales, not profits. We got to claim back the VAT on the 8 box loads of Jiffy bags that were delivered at 4.30 AM every two weeks and the bottles we purchased to pour the products in to.

Our local printer was happy to invoice some of our labels as being "as being promotional items", that means that he didn't charge us VAT. TBH, we could have claimed it back, but it did help our cash flow.

When we first started trading, we knew we would be under the VAT threshold, but our initial products were imported from the USA, so we had to self register as VAT registered to get the products in to begin with.

 

[Ivor Windybottom]

That's not how VAT works, it's 20% added on.

E.g. £100 price + 20% VAT = £120

If you sell that £120 item then you pay £20 to the government. You've paid £20/£120 = 16.667%, which I conveniently rounded to 17%.

If your cost price for this item was £50 +VAT then you'd have paid your supplier £50 +20% VAT = £60. But you can offset that £10 VAT paid against the VAT you charge.

So if VAT registerered you sell at £120, make £60 profit but pay £20-£10 = £10 VAT, so have paid £10 VAT on your £60 profit = 17%.

Overall, after offsetting your costs, You pay Tax on the Value Added, in other words your profit - the clue's in the name!

If not VAT registered you sell at £120, you get £60 profit. You can't reclaim that £10 you paid on your costs, but you don't have to pay £20 tax on your takings so are £10 better off.

You would probably make more profit trading below the £85k threshold and not paying VAT. It's a stupid system but that's how it works. It's what I do - if turnover gets too high then I close for a bit.

I don't understand why you'd need to register for VAT to import from the USA. You should be able to just pay the VAT and forget it. There's no logic in reclaiming the VAT from a small amount and paying it on a bigger amount.

Whatever you pay in VAT after offsetting, you could keep 85% of it to yourself if you just sold less stuff and deregister. Your profits would also reduce, but only by around 15%, but this is probably less than you're handing over in VAT.

Don't take advice from a random stranger who knows nothing about your business, but it may be worth looking into and/or getting some qualified advice.

 

[JP_]

Would it be normal, for a company to want to charge 5% extra on a £500 order, for paying by credit card?

Isn't this why some companies don't accept American Express? Because they add a higher fee on and this hits business margins.
5% seems high, but maybe that's just to cover themselves?

 

[opps]

If I weren't VAT registered but paid £50 for a product to resell, plus VAT at 20%, yes it would cost me £60 to purchase.

If I sold it at £100 as someone that is not VAT registered, I would, make a pre tax profit of £40.

As someone that is VAT registered, I pay the the same £50 (plus £10 VAT), I now need to sell it for £100 plus the £20 VAT. I have paid, £50 and sold it for £100 ex vat. That is £50 quid profit.

With respect, your maths is flawed.

 

[opps]

Isn't this why some companies don't accept American Express? Because they add a higher fee on and this hits business margins.
5% seems high, but maybe that's just to cover themselves?

I used the 5% figure because that is what WorldPay (RBS) usd to charge us, but again, we were small fry. The market is more competitive now.

American Express do, or at least, used to charge so much that retailers refused to accept them. 20+ years ago, she what scowls at me walked in to the B&O agent in Ealing, paid a few grand via her American Express. The store recommended that she come back in an hour or so whilst they waited for the transaction to go through.

 

[Ivor Windybottom]

If I weren't VAT registered but paid £50 for a product to resell, plus VAT at 20%, yes it would cost me £60 to purchase.

If I sold it at £100 as someone that is not VAT registered, I would, make a pre tax profit of £40.

As someone that is VAT registered, I pay the the same £50 (plus £10 VAT), I now need to sell it for £100 plus the £20 VAT. I have paid, £50 and sold it for £100 ex vat. That is £50 quid profit.

With respect, your maths is flawed.

With no respect, your logic is completely muddled.

IF your customers are mainly VAT registered then you are probably better off remaining VAT registered, as they see the price as being £100. But, as I suspect is the case, if your customers are individuals then they (rightly) will see your price as £120. If not registered then you could raise your price to £120, they wouldn't know or care and would buy the same amount. You'd buy at £60, sell at £120 and make £60 profit instead of the £50 you're currently making.

 

[opps]

With no respect, your logic is completely muddled.

IF your customers are mainly VAT registered then you are probably better off remaining VAT registered, as they see the price as being £100. But, as I suspect is the case, if your customers are individuals then they (rightly) will see your price as £120. If not registered then you could raise your price to £120, they wouldn't know or care and would buy the same amount. You'd buy at £60, sell at £120 and make £60 profit instead of the £50 you're currently making.

The primary reason for self registering for VAT was that it helped our cash flow and we were concerned about inadvertently going over the threshold and not having sufficient cash flow to retrospectively pay HMRC. It also made it much easier to get an EOIR number to allow us to import in to the EU from the USA.

I agree that there are many advantages to not being VAT registered