Small Business

[printerman]

Hi all,
Since leaving my full time employment i've been working on starting a small business (using some old contacts fro mmy old job!). I will be importing from China small electronic consumables.

I've been reading ALOT of stuff on business link HM Customs etc but i'm starting to loose track of what is going on. I know i need to a few more things but i'm asking for some first hand help...not links to websites 'cos i've probably read them already....so does anyone know the answer to these questions.....

Do i need to register for VAT? (i won't be making or spending a fortune).
How do i pay my VAT and claim it back.?
How much import duty will i be expected to pay for this type of item form this location and (where the HELL) are the forms i need to fill in)!?
Do i have to pay NI even though i have a part time job also.?

I know these may be basic questions (and its not all pie in the sky stuff) i've been sorting out more fundamental things like suppliers actually supplying me, cost of postage, payment methods etc....

Anyway, i know you guys are always helpful so i thought it wouldn't hurt to ask!

Thanks all

P.

[tick]

Could you not use a banks small business adviser.
just a thought

[printerman]

I thought they charged a big pile of money.?

[tick]

not sure thought you might get a bit of advice for free

[Escapee]

There is a turnover figure where it is cost effective to become VAT registered, only then are you able to claim back the VAT.

Although, I know very little about import duties I think you need to know more than simply about VAT. If you are importing from another country, you are not actually paying VAT on the item so you are unable to claim it back. A company has to pay VAT on an item before they are able to claim it back, a company manufacturing claims it back on raw materials etc.

I think you need to find out if you can claim anything back on the import duty, or it could be just a matter of claiming back the portion of VAT that you charge your end customer.

Not really sure just thinking aloud.

[ian@huth]

I know that you didn't want URL's but at least one of your questions is answered at http://www.bizhelp24.com/business_start_up/start_a_new_business_how_to.shtml

[printerman]

Thankyou! That site seems to cover the areas i was looking for.....

---------- Post added at 13:55 ---------- Previous post was at 12:59 ----------

So if i'm not registering for VAT does that mean i have to pay it on an item or just igonre it until i get to 56K ?

[KingPhoenix]

If your not registered for VAT, you cant claim any VAT back, and you cant charge VAT to your customers. If you are registered for VAT, you need to pay the VAT man all the VAT that your customers pay you less what VAT you have spent...

I.e.

VAT you pay to suppliers = Z
VAT your customers pay to you = Y
VAT you pay to VAT man = X

Y - Z = X

Its not something you can just ignore until you get to 56k, you need to assess it every so often, if your taking around 50k a year (on average £4,200 a month) then i would say you need to be VAT registered. It is completely irrelevant of your outgoings, purely based on your incomings. Also dont forget, at the moment your pricing will be based on the fact that you dont need to pay VAT, however your prices will need to go up when you do, otherwise its you who will lose out, but if your selling to large companies who are VAT registered, they wont be bothered, as they can just claim it back from the VAT man.... :)

Not sure if thats any help or not... :)

[Bifta]

also, if you're a limited company don't forget you might also have to pay corporation tax.

[printerman]

Bu, if i'm importing something i've read that before the items are released i have to pay the duty and vat on them. Due to china not being EC they don't pay the vat so i have to. Therefore i'll have to charge the customers (who are not vat registered) VAT ? Yes/no?

[Bifta]

Bu, if i'm importing something i've read that before the items are released i have to pay the duty and vat on them. Due to china not being EC they don't pay the vat so i have to. Therefore i'll have to charge the customers (who are not vat registered) VAT ? Yes/no?

You pay VAT, you charge them VAT, you pay customs and excise the VAT you've charged your customers then you claim back what you've paid for the product, your customers don't need to be VAT registered to PAY vat.

[printerman]

i'll get charged the VAT at customs before i actually recieve the goods though...i'm sure i do.

[Paul]

It costs nothing to register for vat, as long as you don't mind doing the paperwork then you can do it - this will allow you to claim back any vat you pay. You must also remember to charge vat on your sales. I ran and small business for three years and registered for vat, my turnover was only a couple of thousand per year.

[printerman]

Thankyou! Thats what i thought....i've got 3 month to do that though i beleive.

[SMHarman]

Hi all,
Since leaving my full time employment i've been working on starting a small business (using some old contacts fro mmy old job!). I will be importing from China small electronic consumables. Will they need CE certification?

I've been reading ALOT of stuff on business link HM Customs etc but i'm starting to loose track of what is going on. I know i need to a few more things but i'm asking for some first hand help...not links to websites 'cos i've probably read them already....so does anyone know the answer to these questions.....

Do i need to register for VAT? (i won't be making or spending a fortune). Not until you turnover over 64k but you will be paying out irrevoverable VAT - are your customers business (VAT registered or consumer?)
How do i pay my VAT and claim it back.? You register for VAT, account for it and pay it. Many VAT schemes, or just through a 1/4 ly return
How much import duty will i be expected to pay for this type of item form this location and (where the HELL) are the forms i need to fill in)!? This should to an extent be handled by the shipper, they define the product by international product catagorisation codes and these define the duty
Do i have to pay NI even though i have a part time job also.?You need to pay £2.45 odd a week in Class 2 (or 4) if you earn enough you pay Class 4 (or 2) on the profits also. You can get exemption from this if you part time job pays you over the upper NI limit (so your class 1 ee's is fully paid)

I know these may be basic questions (and its not all pie in the sky stuff) i've been sorting out more fundamental things like suppliers actually supplying me, cost of postage if this is postage then RM/Parcelforce will collect the VAT and Duties on the import for you. http://www.cableforum.co.uk/board/showthread.php?p=664458#post664458 to borrow someone elses post., payment methods etc....

Anyway, i know you guys are always helpful so i thought it wouldn't hurt to ask!

Thanks all

P.

---------- Post added at 20:11 ---------- Previous post was at 20:11 ----------

Could you not use a banks small business adviser.
just a thoughtIf you open your business account with HSBC they give you a phone line for advice for free. Are you becoming a company or a sole trader?

---------- Post added at 20:13 ---------- Previous post was at 20:11 ----------

There is a turnover figure where it is cost effective to become VAT registered, only then are you able to claim back the VAT. You can choose to register before you hit the turnover limit if it is beneficial for you and your customers.

Although, I know very little about import duties I think you need to know more than simply about VAT. If you are importing from another country, you are not actually paying VAT on the item so you are unable to claim it back. A company has to pay VAT on an item before they are able to claim it back, a company manufacturing claims it back on raw materials etc.You will have the products shipping value assessed for duty, then the shipping + duty + product cost will be assesed VAT, that will be your input vat.

I think you need to find out if you can claim anything back on the import duty, or it could be just a matter of claiming back the portion of VAT that you charge your end customer.Import duty is a sunk cost, you cannot recover it from anyone but the customer in the price you charge them.

Not really sure just thinking aloud.

---------- Post added at 20:15 ---------- Previous post was at 20:13 ----------

Thankyou! That site seems to cover the areas i was looking for.....

---------- Post added at 13:55 ---------- Previous post was at 12:59 ----------

So if i'm not registering for VAT does that mean i have to pay it on an item or just igonre it until i get to 56K ?you will have to pay it on your inputs but cannot charge VAT to your customerSo if you sell something for £100 that is yours to keep, no need to pay any of that to the VAT man, but in your cost of sales you have the price you paid for the item, the shipping, the duty and the VAT you paid to get it in the country.

---------- Post added at 20:17 ---------- Previous post was at 20:15 ----------

Bu, if i'm importing something i've read that before the items are released i have to pay the duty and vat on them. Yes to make sure HMCE get their money - shrewed heh - normally your shipper will handle this. Due to china not being EC they don't pay the vat so i have to. Yes Therefore i'll have to charge the customers (who are not vat registered) VAT ? Yes/no?Only charge it if you register.

---------- Post added at 20:18 ---------- Previous post was at 20:17 ----------

You pay VAT, you charge them VAT, you pay customs and excise the VAT you've charged your customers then you claim back what you've paid for the product, your customers don't need to be VAT registered to PAY vat.This is only true if you are registered.

---------- Post added at 20:20 ---------- Previous post was at 20:18 ----------

i'll get charged the VAT at customs before i actually recieve the goods though...i'm sure i do.Yes - if you are shipping with a DHL / FedEX / UPS type company they will pay the fees and invoice you and charge you a few £ÃÆ ’‚£Ãà¢Ã¢â€šÂ¬Ã…¡Ãƒâ€šÃ‚£ for the privelage. If you are shipping postal then RM/Parcelforce do the same but will not release until they have a cheque in their hands (top tip here, make sure it is a cheque, they take ages to bank them and lose about 50% of them so you save paying!). If you are bringing boat / container loads of stuff i have no clue - out of my field of experience.

---------- Post added at 20:22 ---------- Previous post was at 20:20 ----------

If your customers are businesses that are VAT registered then register immediately. If they are consumers then you may want to hold off as at least initally you can be about 8% cheaper than the competition, though if you have lots of startup costs you may want to register to recover the VAT on those startup costs.

[printerman]

Thankyou SMHarman! Thats very herlpful.

So, (another question). My supplier will ship TNT or DHL. I'm guessing from what you've said, they'll get delivered and therefore i'll have to hand them a cheque at the door for the duty and VAT (and handling). Do i have to fill in a SAD (C88) importation document or will they do it for me?

[SMHarman]

DHL operate a VAT and Duties account which they will open for you. They pay the VAT and Duties and then invoice you the amounts, these are based on the AWB (Air Way Bill) documentation that the shipper provides. You then get an invoice from them to settle, if you upgrade this account to a shipping account (which is a good idea, they have a rate of £8.50+VAT domestically for items up to 30kg - so is cheaper than the Royal mail for items over 4 kg), and pay by DD then you can defer settlement of these until the 23rd of the following month.

Don't know how TNT works, never used them internationally as they were not competitive. UPS (Big Brown) generally does COD nowadays as so many US internet shops use them and they were suffering massive bad debt on many small V&D accounts for individuals who were ordering iPods and not paying the V&D.

You will learn cashflow is king in the first few years of a startup.

[printerman]

So what you are saying is try to get my supplier to send in less than 30kg weights (per box) and to deffinately use DHL?!

[SMHarman]

So what you are saying is try to get my supplier to send in less than 30kg weights (per box) and to deffinately use DHL?!
No - No - me being confusing. Whatever you are buying - you are then selling. What I am saying is that we have found that DHL were very competitive within the UK as a shipper, so we send items under 0g- about 3kg with Royal Mail and above this with DHL. Royal Mail Special Delivery is £18.50 for a 10kg item. DHL would charge £10.
You need to work out how you ship over, air or sea (or land I guess). Generally the larger the consignement the cheaper and when by air the smaller by volume the cheaper.
We have used TNT and DHL domestically TNT consider themselves B2B and always had to get approval for domestic deliveries (but it was always yes). DHL deliver anywhere.

[printerman]

Oh! So you are only using DHL in the uk...this isn't for international freight...right i understand now.

So do you know how i go about importing these items successfully. My supplier will use FEDEX DHL, UPS what ever. If they do that for me and just charge me the shipping, then what? Do i now have to send customs a C88(SAD) document telling them exactlly what the items are etc.....? Will they then release them and let me pay (VAT DUTY) on arrival or do i have to set up an account with them?

[SMHarman]

Oh! So you are only using DHL in the uk...this isn't for international freight...right i understand now.

So do you know how i go about importing these items successfully. My supplier will use FEDEX DHL, UPS what ever. If they do that for me and just charge me the shipping, then what? Do i now have to send customs a C88(SAD) document telling them exactlly what the items are etc.....? Will they then release them and let me pay (VAT DUTY) on arrival or do i have to set up an account with them?We also use DHL internationally US>UK. When the shipper creates the shipment part of that process is to create the customs documentation (which is pretty standardised globally). Part of that is to include the Harmonized Tariff Schedule number for each item in the shipment. This number defines the duty rate. http://www.logisticsworld.com/htsb02.asp This is all done by your shipper, I would imagine they ship to other suppliers and are well versed in this and the HTS codes of their products.

So now your supplier has a box of widgets an AWB and customs docs with HTS codes on it. This is all given to DHL or whoever, and thesedays if it is done electronically the shipper submits the customs docs to HMCE electronically when the box is assigned for collection.

The box then makes its way to East Midlands Airport (or wherever the shipper goes in the UK) and the shipping company then clear it through customs and charge you about £8-£20 for the honour. They then pay the Vat and Duties and then deliver it to you.

About a week later you get a letter through the door with the copy of the vat and duties calcs and a bill for this and their handling fee.

Your real concern is understanding what these numbers will be on the products you are importing, otherwise you may be incorrectly pricing your product. It is the shipper that should be ensuring they have them recorded correctly on the customs docs.

[printerman]

Thankyou! You answered the question i was TRYING to ask but couldn't actually type it. I bleive you are spot on. When i was in work we never worried about C88 forms or whatever(it was me who would have to fill them in)...stuff just arrived and we paid the bill.

I think the world is a smaller place these days and customs can't expect forms from every tom dick and harry to turn up. It would be too much to store i think.

Thanks again.

---------- Post added at 11:19 ---------- Previous post was at 11:02 ----------

If you have anymore advice it would be appreciated.

[SMHarman]

If you have anymore advice it would be appreciated.1. Absolutely LOVE what you want to do. In 24 months time you will absolutely hate it and you have to remember that initial love to get past the bump that makes you want to pack it all in.
2. Keep your accounting records up to date - I use simplybooks and find it fantastic and idiot proof. It also does your VAT returns for you, and the current version handles customer accounting invoicing and statements.
3. Find a good accountant before you start to establish the best vehicle to run it from Sole Trader or Company - Company has the benefit of the veil of incorporation separating yours and the company assets, Sole trader may have better tax breaks.
4. Manage cashflow / Manage recievables. We make sure we have a current credit card on file for all customers - if they are late paying we charge it and add 2% for processing fees.
5. Make sure your web technology works well and is scalable and robust.
6. Don't let EZZI run your data centre.

[printerman]

I LOVE the idea of working for myself. I don't mind not making a lot of money(although that would be nice!, i'm not expecting too) just be nice to follow my nose instead of my bosses. When things go great he gets the credit and when things go bad i get the s**t. I'm no rocket scientist but i'm not fool either. I know i've asked a lot of questions but i'm not daft enough to go headlong into giving my money to a chinaman without a return.

I've heard of simplybooks, but not used it. I'll do some research.

I'm going for sole trader at the moment. That way the onus (spelling) is on me. I also think its easier to get going this way.

I've got a few more questions if you don't mind. !?

1. Will my package (from DHL say) be a problem delivered to my home address.? (as sole trader this would be helpful or a month or two).

2. After i've payed VAT at customs. Do i claim back that VAT or the VAT i charge my customers on the price THEY paid me for the product (two different ammounts!, ive realised!).?


Thanks again.
P.

P.S Whos EZZI?

[SMHarman]

I LOVE the idea of working for myself. I don't mind not making a lot of money(although that would be nice!, i'm not expecting too) just be nice to follow my nose instead of my bosses. When things go great he gets the credit and when things go bad i get the s**t. I'm no rocket scientist but i'm not fool either. I know i've asked a lot of questions but i'm not daft enough to go headlong into giving my money to a chinaman without a return.

I've heard of simplybooks, but not used it. I'll do some research.

I'm going for sole trader at the moment. That way the onus (spelling) is on me. I also think its easier to get going this way.

I've got a few more questions if you don't mind. !?

1. Will my package (from DHL say) be a problem delivered to my home address.? (as sole trader this would be helpful or a month or two).

2. After i've payed VAT at customs. Do i claim back that VAT or the VAT i charge my customers on the price THEY paid me for the product (two different ammounts!, ive realised!).?


Thanks again.
P.

P.S Whos EZZI?
No not for DHL, UPS or FedEx (the ones I have had deliver). We ran from home for a couple of years - until the office looked like a house looked like an office IYSWIM.

VAT.

So you buy the widget for £100, pay shipping of £50 duty of 10% and VAT.

That will be £100+£50=£150 * 10% = £15 > £165 * 17.5% > £28.87.
So DHL will charge you £10 for processing £15 duty and £28.87 in vat.

Your base cost of the item is now £175.

You sell it for £300 and charge vat £52.52 on that so the buyer pays £352.52.

Your profit is £125 (300-175).

You then account for VAT to HMCE your statement shows input vat of £28.87 and output vat of £52.52 so you need to write a cheque to HMCE for £23.65. Depending on how your VAT accounting works you would need to write that cheque regardless of if the person you sold to has paid you.

If you were not registered for VAT. Your base cost would be £175+28.87 in vat that you can no longer recover so £203.87 You sell for 352.52 but you get to keep all of that (but the person you sell to has no VAT to recover on their input side) So your profit on this transaciton is now higher £158.65 but this is only sustainable until you hit £66k of turnover and if your other expenses are based on this you are in trouble.

So did that make sense?

On and another piece of advice, compete on quality of service, product, knowledge - anything other than price - ultimately you can never differentiate yourself by being the cheapest unless you have big company buying power to match.

Simply books - idiot proof accounting software (says an accountant).

EZZI - the data centre that hosts CF and i-web. Keeps going wrong this week, and we have not got to Friday 13th yet.

[spiderplant]

Veering ever so slightly off-topic, but I suspect SMHarman or others may be able to help...

I occasionally have to export things (usually samples or equipment for repair). I create the Proforma Invoice using the tool on DHL's website, but when it asks for Terms of Trade I haven't a clue which to select (DDU, DDP, EXW, CPT, CIP, DAF, FCA, CIF, FOB). I use CIF, and it seems to work, but can't remember why.

Can somebody point me at a website that tells me in plain English what they mean? Or just tell me which I should use.

[printerman]

Thanks. You're being very helpful...its really appreciated. How do i give you a Rep?

---------- Post added at 19:44 ---------- Previous post was at 19:42 ----------

To work out more accurate costs (remeber i'm buying in bulk), what the best way to work out costs.....i don't think i'm explaining myself very well but i'll try...do i convert from $ to £ ,devide by number of units work out duty and vat per item.......or what.? Whats the best way.?

[homealone]

Veering ever so slightly off-topic, but I suspect SMHarman or others may be able to help...

I occasionally have to export things (usually samples or equipment for repair). I create the Proforma Invoice using the tool on DHL's website, but when it asks for Terms of Trade I haven't a clue which to select (DDU, DDP, EXW, CPT, CIP, DAF, FCA, CIF, FOB). I use CIF, and it seems to work, but can't remember why.

Can somebody point me at a website that tells me in plain English what they mean? Or just tell me which I should use.

here you go

http://www.worldclassshipping.com/incoterm_cif.html

e.g. CIF = carriage, insurance , freight ( not a renamed bathroom cleaner ;) )

[SMHarman]

Thanks. You're being very helpful...its really appreciated. How do i give you a Rep?

---------- Post added at 19:44 ---------- Previous post was at 19:42 ----------

To work out more accurate costs (remeber i'm buying in bulk), what the best way to work out costs.....i don't think i'm explaining myself very well but i'll try...do i convert from $ to £ ,devide by number of units work out duty and vat per item.......or what.? Whats the best way.?
It's easier sticking with the bulk until you have the figure above then divide bu unit (IMHO), you could do it the other way, but rounding would be more significant.
Bulk cost $ + bulk shipping $ / $£ rate = bulk cost * duty = * VAT = + processing = / quantity.

Or if you are VAT registered ignore the VAT step as VAT is a wash.

[printerman]

Don't know if i'm thinking straight this morning.!

I can see its simple to pay the vat as a sole trader, but isn't it more profitable to be vat registered. I.E. You can increase the profit margin and pay a lower set value of vat?

[SMHarman]

If you don't register and charge your customers as if you are registered then you keep about 8% more than a registered person (based on 100% markup)

Unregistered, cost = say 100+irricoverable vat of 17.50 = 117.50
Sell for 200 + the VAT your competitor would charge so £235 which is all yours as no VAT) so profit is
235-117.5 = 117.5

Registered your cost is 100 + input vat of 17.50
Sell for £200 + output vat of 35
Profit is £100 and you have a payable to HMCE of £17.50

Difference in profit is the VAT payable. 17.50/235 = 7.5%

But are you retail or selling to businesses. Businesses will want you to be VAT registered as they will have no input VAT to offest against thier sale of the product, extending the example above

Not registered
117.50 cost to you > sale price £235 > cost to your customer > Sell for £400+ VAT > £470 (but they now owe £70 vat as they have no input VAT to reclaim.

Registered
£117.50 (inc £17.50) > £235 (inc £35) > £400 (inc £70) so your customer now only owes £35 VAT as they have input VAT of £35.

[printerman]

I'm not selling to bussinesses. I'll hopefully be selling to the general public. 100% mark up !! Wow that would be nice more like 20%!

[handyman]

You've just confused me on that too.
I think he's not going to be registered for VAT.

So If he buys something for £100 plus VAT (117.5) - sale price £200 then his mark - up is £82.50.

If he was VAT registered he buys at £100 pls VAT (117.5) sells at £182.50 plus VAT (214.43)

VAT hes charging the customer £31.94
VAT hes claiming back £17.50
Amount to pay the VAT man £14.44.

Markup = £68.06 which is less and he has a higher cost to the customer.:mad:

However the VAT on the pens,desks, computers he buys as a business is also claimable back.

[SMHarman]

I'm not selling to bussinesses. I'll hopefully be selling to the general public. 100% mark up !! Wow that would be nice more like 20%!20% Gross - thats very tight when you take expenses off. I understand that 100% gross markup in retail is more the norm. So you sell for double what you bought it for.

---------- Post added at 14:33 ---------- Previous post was at 14:28 ----------

I think he's not going to be registered for VAT.

So If he buys something for £100 plus VAT (117.5) - sale price £200 then his mark - up is £82.50.

If he was VAT registered he buys at £100 pls VAT (117.5) sells at £182.50 plus VAT (214.43) <where did these numbers come from>

If he was VAT registered he buys at £100 pls VAT (117.5) sells at £200.00 plus VAT (235.00)

VAT hes charging the customer £35
VAT hes claiming back £17.50
Amount to pay the VAT man £17.50.

Markup = £100. which is less and he has a higher cost to the customer.:mad: vs. Markup if not VR 235-117.50 - 117.50. I'm assuming that you still sell at the vat inclusive price even though you don't register, you just get to keep it in your pocket.

However the VAT on the pens,desks, computers he buys as a business is also claimable back. YesI've added to your post in bold and italic.