Non-VAT-registered trader, supplying VAT-registered customer

I'm a small trader, not registered for VAT. Sometimes my customers ask me to purchase IT equipment for them. I understand that this means they can't reclaim the VAT on those purchases, as the accounting 'chain' is broken, but does it matter? Surely those purchases can be written down as business expenses anyway? I'm sure this is a naive question, but I don't know the answer!
Reply to
Philip Herlihy
In article , snipped-for-privacy@you.com says...
Oops - I meant to post this in uk.finance, which is a little busier than uk.business.accountancy. Hope this comment spares me the outrage applied to multi-posters!
Reply to
Philip Herlihy

Well, you can just simply run an example through the maths to demonstrate that the addition of the VAT element *does* affect their bottom line.
Or just apply reductio ad absurdum: If tax-deductibility (or capital allowances, if that's what you mean) renders the price paid for something irrelevant to the financial health of the business, then businesses (whether VAT-registered or not) wouldn't care how much they paid for stuff.
But they certainly do care.
So it isn't irrelevant!
Reply to
Cliff Frisby
The goods cost them 20% more so this will have an impact.
They won't have to pay tax on the outlay as an allowable expense, but then again that only saves them corporation tax on the VAT component if they make enough profit to pay corporation tax.
Item costs £100 plus VAT £20 Total outlay £120. Tax relief on VAT paid and not reclaimed of £20 @ 20% (remember you get tax relief on the £100 regardless) £4. So it is costing them an extra £16 assuming they qualify for corporation tax relief that year. More complicated if they are a larger business but setting an expenditure against tax doesn't mean you get all your money back.
Note that I am not an accountant!
Cheers
Dave R
Reply to
David.WE.Roberts
"Them" being the end-customer, who are themselves presumably VAT-reg?
(I'm assuming OP makes no margin here...) OP buys at £100+vat = £120 OP charges customer £120, no vat = £120 Customer pays £120, no vat = £120
versus
OP buys at £100+(reclaimable vat) = £100 OP charges customer £100+(reclaimable vat) = £120 Customer pays £100+(reclaimable vat) = £100
Reply to
Adrian
In article , snipped-for-privacy@gmail.com says...
Thanks, David and Adrian. I do get it now; it seems very straightforward now you've explained it to me!
Reply to
Philip Herlihy
Well, no, 'them' being Phil's VAT registered trade customer (no idea if they sell the IT kit on or use it purely in house) - I was assuming in house use and trying to point out that his client would end up paying more and thus making less profit or a greater loss regardless of the tax situation. However this may be what you meant. :-)
Yes on the margin also - if Phil was aiming for say a 10% margin then he would be charging them (£120 + 10%) as opposed to (£100 + 10%).
In this situation I assume there is a valid reason why the customer can't source the IT kit directly - such as purchasing complications with small items of equipment compared to a single bill from an approved service provider (Phil).
Cheers
Dave R.
Reply to
David.WE.Roberts
I think we're pretty much saying the same thing...
I've been in Phil's position, and I've taken on sourcing for my customers whenever they'll agree it. It makes life SO much easier for (me/Phil), since it massively cuts down arriving on site to find either nothing or the wrong thing's arrived.
Reply to
Adrian
In article , snipped-for-privacy@nospam.net says...
...
Right on both counts! (use in house, and the convenience of a single bill).
Reply to
Philip Herlihy

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