Will VAT ruin my business?

Fukuyama

Hi guys,

I have a question regarding VAT I'd have to charge in my new business idea.

Basically, my idea is to buy broken products from people and as such they won't charge me VAT as it'll all be through cash and/or eBay.

This will cost around 200. After repairs my costs will be around 250.

My research tells me that I can sell them for around 350. That's a 100 euro profit. Great.

However, when we then factor in the fact that I'd have to charge VAT my idea is scuppered. For a 350 product, VAT would be around 75. So that's leave me with just 25 profit. After other expenses I see little point in even operating.

I guess my main question is, are my workings correct here?

If so, is there any way to get exemptions from the tax man if you cannot claim back VAT on purchases?

Cheers,
Dean.

sandin

Firstly it depends on the product as some products are 0% rated. But in all likelihood its 23%.

If the selling price was 350 including vat then the vat element would be €65 (285 + 23% vat = circa 350)

Hoever the good news for you is...

If you are doing this as a small part-time hobby business, then you may not reach the treshhold for registering for vat which is currently €75,000. Basically once your annual sales are below €75,000, you are not required to register for vat and you can trade away.

ei9go

If you do register for VAT, there is no VAT payable on second hand goods but there is VAT payable on the profit.

It's an EU directive.

You do not give a VAT invoice to the buyer as they can not reclaim this VAT.

You probably will not need to register unless you are doing a huge business.

Fukuyama

Hi guys! Thanks for the quick replies so far.

My turnover will exceed 75,000 within a few months so any exemption from charging VAT is out the window

That EU directive seems like it might just save my skin. If I read you correctly, does that mean I'd only charge VAT on the profit. So 23% of my 100 euro or 23% of the 150 (repair and profit?).

If so things might just work out afterall!

Could you give me the name or link to that directive or info on the revenues website? I can't seem to find a word on it

EDIT: Just found something called the Maragin VAT method which specifies second-hand goods. However it seems to only apply to 'movable' second hand goods such as machinery or vehicles?

MBateson

Doesn't the 'moveable' mean as opposed to 'immovable' (such as a building)?

antoinolachtnai

I think the information you are looking for is here.

http://www.revenue.ie/en/tax/vat/leaflets/margin-scheme-second-hand-goods.html

Fukuyama

Got it now guys!

Once again this forum has proven to be very helpful!

Thanks again all!

- Dean.

pm1979

my accountant told me last week the threshold for VAT is 37000

is that wrong?!?

drunkmonkey

Dean0088 wrote: »

However, when we then factor in the fact that I'd have to charge VAT my idea is scuppered. For a 350 product, VAT would be around 75. So that's leave me with just 25 profit. After other expenses I see little point in even operating.

Have you taken into account that you will be claiming back Vat on the expenses used to create the profit.
It's worth going to an accountant.

prospect

Also, the Value you are adding, is it parts or labour?
If the majority is labour it would be all at 13.5% afaik. (i am sure there are thresholds etc.)

Certainly worth talking with an accountant.

mcleixlip

Your accountant is correct. If you manage to keep your turnover BELOW €37k per year, you do not have to register for vat, which means you don't charge vat.

MBateson

pm1979 wrote: »

my accountant told me last week the threshold for VAT is 37000

is that wrong?!?

The threshold is 37,000 for services, 75K for products

The Apprentice

Dean0088 wrote: »

This will cost around 200. After repairs my costs will be around 250.

My research tells me that I can sell them for around 350. That's a 100 euro profit.

And if u work out that you,ll need a premises, insurance rates, vat included and possibly spare parts, electricty etc

Did i mention wages... did you just work on this item for 10hrs at €10 per hour ??
So technically now u have lost money on this item....

There is no one doing this buddy for a very good reason, there is no money in it.

This isnt a business, dont be chasing the dream.. i hope u sincerly try doing something else with your time and money !!

TylerIE

The Apprentice wrote: »

And if u work out that you,ll need a premises, insurance rates, vat included and possibly spare parts, electricty etc

Did i mention wages... did you just work on this item for 10hrs at €10 per hour ??
So technically now u have lost money on this item....

There is no one doing this buddy for a very good reason, there is no money in it.

This isnt a business, dont be chasing the dream.. i hope u sincerly try doing something else with your time and money !!

if this is the product and service I think it is the service can be done in an hour or so, and from home, so it may indeed provide an income for someone requiring an extra side income or who is unemployed.

The Apprentice

Provide an income for someone.. or a living ??

TylerIE

The Apprentice wrote: »

Provide an income for someone.. or a living ??

a lot better income than unemployment benefit, in terms of self esteem, learning opportunities, employment history and experience, and networking opportunities if exploited.

Even at half the OPs expected profits 5 units a week is well over unemployment benefit, particularly if the OP is under 25.

ted1

How much does the product cost wholesale?