Could you explain exactly what it means to be VAT registered, and why some companies aren't? I've heard the term used a fair bit recently but have no idea what it means!
Tim Keeley buys willow from JS Wrights for £50.00 a cleft, with a VAT of £10.00, paying a total of £60.00. JS Wright send the £10.00 of VAT to HMRC (aka the Government).
Tim then sells his blank bats to a cricket brand for £100.00, plus a VAT of £20.00, for a total of £120.00. As, Tim already paid £10.00 of VAT in the initial transaction, he only pays the other £10 of VAT at this stage to HMRC.
The cricket brand charges a final consumer £300.00 for the bats, of which £50.00 of this is VAT to HMRC. However, since HMRC has already collected £20 of VAT at the previous production stages, the retailer only sends £30 in VAT.
So the final VAT of £50.00 has been received in parts, at different stages of the value-adding process. In short this means a none-VAT registered business can charge a slightly lower price. From the example above a VAT registered business walks away with £270 in cash. Whereas a none-VAT registered would walk away with £300 cash.
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