Flat Rate VAT scheme – Imports from EU

[Pickle2]

I have the opportunity to supply a customer with product X as a one off. Product X I can source from the EU for 30k and sell to my customer for 35k

I am registered for the flat rate VAT (13.5% - software consultancy).

I have to pay VAT on the purchase of 30k x 17.5% = 5.25k

I charge VAT on the sale at 35k x 17.5% = 6.125k

I pay VAT via flat rate scheme of 41.125 x 13.5% = 5.55k

So All in

I have made a 5k “profit” excluding VAT calcs. But I have to pay the VAT man 10.8k for the transaction. And therefore I would actually lose 4.2k

Therefore it appears to me that being part of the flat rate VAT scheme prevents me from taking this easy profit. Is this correct or am I going mad?

I know there is an allowance for capital expenditure exceeding 2k, but buying in something to sell on isn’t a capital expenditure. Any other options?

[Pickle2]

mad

Its OK. I am going mad. It hit me on the way home, stoopid. I am forgetting to 6.125k in VAT i will get fromt he customer.

So in actual fact I will give the VAT man 4.675 k (10.8 - 6.125).

The deal is now marginally profitable, but only by a few quid (rather than the 5k in paper profit). SO I guess my original point still stands.

Is there anyway for this transaction to fall outside of the scope of the flat rate VAT scheme that my ltd Co. operates?

[MrsGoof]

DOesnt the flat rate scheme only apply to purchases under 2k (although it may have changed since I last checked)

So your purchase is outside the scopt of FRS.

[DaveB]

IIRC The FRS only applies to capital purchases under 2k so in this case just apply the normal VAT rules the VAT man gets his wedge and you still make your 5k profit.

IANAA.

[expat]

DOesnt the flat rate scheme only apply to purchases under 2k (although it may have changed since I last checked)

So your purchase is outside the scopt of FRS.

http://www.hmrc.gov.uk/manuals/bimmanual/BIM31585.htm

If capital assets are purchased with a VAT inclusive value of £2,000 or more, the VAT can be recovered in the normal way. This concession, however, cannot be used where the assets were:

acquired for resale...

[expat]

I have the opportunity to supply a customer with product X as a one off. Product X I can source from the EU for 30k and sell to my customer for 35k

I am registered for the flat rate VAT (13.5% - software consultancy).

Hmm the Flat Rate VAT for this activity is set rather high to reflect the fact that you're not expected to buy and sell stuff.

[ASB]

I think you *might* be going mad.

The product you are importing is 30k. Surely you supply the vendor you UK Vat number and they don't charge you their destination VAT. So your input value is still 30k.

You then sell it to your UK customer at 35k + VAT and hand over the vat.

Of course it might be me going mad.

[Pickle2]

I think you *might* be going mad.

The product you are importing is 30k. Surely you supply the vendor you UK Vat number and they don't charge you their destination VAT. So your input value is still 30k.

You then sell it to your UK customer at 35k + VAT and hand over the vat.

Of course it might be me going mad.

Thats correct, but then I have to pay the VAT on the acquisiation seperatley to the VAT on the "profit" for flat rate. Ignoring the VAT, lets pretend the product is food and is thus zero rated.

I buy it in for 30k, sell it for 35k, but as im on the flat rate I have to give the VAT man 35k * 13.5% regardless of the fact that all transactions involved were free from VAT by virtue of being zero rated.

I think Im stuck on this one. I could of course leave the flat rate vat scheme or start another company....

[Moscow Mule]

Can you not structure your transaction so the end user purchases from the EU vendor, but one or other party gives you a commission/finders fee?

[ASB]

Thats correct, but then I have to pay the VAT on the acquisiation seperatley to the VAT on the "profit" for flat rate. Ignoring the VAT, lets pretend the product is food and is thus zero rated.

I buy it in for 30k, sell it for 35k, but as im on the flat rate I have to give the VAT man 35k * 13.5% regardless of the fact that all transactions involved were free from VAT by virtue of being zero rated.

I think Im stuck on this one. I could of course leave the flat rate vat scheme or start another company....

Assuming you are selling it on to a UK entity.

- Import 30k. The supplier charge you no vat. [I think this is technically "outside the scope" of UK vat, look at the weird and wonderful rules about place of supply]

So, we have output of 35k + Vat = 41,125. Pay to vat man = 5,518.

So your profit on the deal is still 41,125 - 5,518 -30,000 = 5,607.

Assuming you are selling it on to a non UK entity.

There is no need to charge vat - provide you have their VAT number. Also because this is outside the scope of UK VAT (my reading of the rules from the guidance) then this invoice is not included in your FRS turnover thus you do NOT hand over 13.5% of it.

In this case you are still 5k to the good.