Anyone understand VAT?

The basics: If you are VAT registered, which can be any legal entity (i.e. individual or a company, or one of the other myriad different things) you have to charge VAT on basically everything you sell, irrespective of what you bought it for (I am ignoring exemptions and 0% VAT items for simplicity). This VAT you have to pay to the government. However this amount you pay is reduced by the VAT you have paid on goods you have bought.

As a legal entity, you have to be VAT registered if your annual turnover (amount you charge your customers before VAT) is over £76k a year (though that was a couple of years ago), so this means even if you are trading as a Sole Trader or contractor, you still have to register if your turnover is above the threshold, think freelance architect, could easily be over that without actually trading through a company. You can register if your turnover is less than this, but you don't have to.

The flat rate scheme mentioned above: What may be happening with the chap in the workshop next door is if you count as a small company (turnover below £150k if I remember correctly) you charge VAT at the regular 20%, but can pay to HMRC a lower percentage depending on your industry 12% is standard. Thus you get a bonus 8% added to your turnover. You still get a reduction of the total VAT equivalent to the 20% you have paid on goods and services bought. Legally eh would still have to charge you the 20% VAT if he is registered, but would only pay 12% of it to the tax man.

The online shop may not have a turnover of £76k, or if they are not registered in the UK, wouldn't have to pay VAT anyway. (though you would have to pay import duty etc.) Even if they are paying VAT, these is no reason why trade should be cheaper.

[Mr Speirs]

The flat rate scheme mentioned above: What may be happening with the chap in the workshop next door is if you count as a small company (turnover below £150k if I remember correctly) you charge VAT at the regular 20%, but can pay to HMRC a lower percentage depending on your industry 12% is standard. Thus you get a bonus 8% added to your turnover. You still get a reduction of the total VAT equivalent to the 20% you have paid on goods and services bought. Legally eh would still have to charge you the 20% VAT if he is registered, but would only pay 12% of it to the tax man.

Correct but only if the total amount of the goods in the same transaction meets or exceeds £2,000
Below this amount you cannot claim the VAT back.

From whati remember, the 2000 threshold is quite new. Could be wrong though.

[Adam Ef]

Thanks all. He's full VAT registered. Looks like he'd be paying VAT buying (to claim back later) and have to add it on again for me.. so would become more expensive than me getting them myself online.