Monitor Your VAT Threshold Automatically
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Understanding UK VAT for Resellers
VAT (Value Added Tax) is a consumption tax charged on most goods and services in the UK. For resellers, understanding VAT rules is crucial because once your annual turnover exceeds £85,000, registration becomes mandatory - and this can significantly impact your business model and profitability.
Key VAT Facts for UK Resellers:
- Current VAT registration threshold: £85,000 annual turnover
- Standard VAT rate: 20% on most goods
- Registration is based on turnover, not profit
- You must register within 30 days of exceeding the threshold
- VAT registration affects your pricing and cash flow
When Must You Register for VAT?
Mandatory Registration
- • Annual turnover exceeds £85,000
- • Turnover in any 12-month period hits £85,000
- • You expect to exceed £85,000 in next 30 days
- • You acquire a VAT-registered business
- • Failure to register results in penalties
Voluntary Registration
- • Turnover below £85,000 but want to register
- • To reclaim VAT on business purchases
- • To appear more professional/established
- • Selling mainly to VAT-registered businesses
- • Can deregister if turnover falls below £83,000
How VAT Registration Affects Your Reselling Business
Pricing Impact
Once VAT registered, you must charge VAT on your sales. This creates a significant pricing challenge for resellers selling to consumers.
Example: £50 Item Impact
Before VAT Registration:
- • Selling price: £50
- • Customer pays: £50
- • You receive: £50
After VAT Registration:
- • Net price: £50
- • VAT (20%): £10
- • Customer pays: £60
- • You keep: £50 (must pay £10 to HMRC)
Cash Flow Considerations
VAT Collection
You collect VAT from customers but must pay it to HMRC quarterly. This affects cash flow - you're essentially holding government money.
VAT Reclaim
You can reclaim VAT on business purchases (stock, equipment, services). This can improve cash flow if you buy from VAT-registered suppliers.
VAT Schemes for Resellers
HMRC offers several VAT schemes. For most resellers, these are the relevant options:
Standard VAT Scheme
How it Works:
- • Charge 20% VAT on all sales
- • Reclaim VAT on business purchases
- • Pay difference to HMRC quarterly
- • Keep detailed VAT records
Best For:
- • High-value item resellers
- • B2B focused businesses
- • Those buying from VAT-registered suppliers
- • Businesses with good record-keeping
Flat Rate Scheme
How it Works:
- • Pay fixed percentage of gross turnover
- • Retailers: 7.5% (first year: 6.5%)
- • Cannot reclaim VAT on purchases
- • Simpler record-keeping
Best For:
- • Small resellers (under £150k turnover)
- • Those buying mainly from consumers
- • Low VAT on purchases
- • Simplified administration preference
Margin Scheme (Second-hand Goods)
How it Works:
- • VAT only on profit margin
- • Must buy from non-VAT registered sellers
- • Cannot reclaim VAT on purchases
- • Special record-keeping requirements
Best For:
- • Vintage/antique dealers
- • Car boot/charity shop sourcing
- • Art and collectibles
- • High margin, unique items
Calculating VAT Impact on Profitability
Let's look at real examples of how VAT registration affects different types of resellers:
Scenario 1: Fashion Reseller (Consumer Sales)
Before VAT Registration:
- • Monthly sales: £8,000
- • Cost of goods: £4,000
- • Gross profit: £4,000
- • Profit margin: 50%
After VAT Registration (Standard):
- • Must increase prices by 20%
- • Customer resistance likely
- • Or absorb VAT = 33% profit drop
- • Cash flow impact from VAT payments
Scenario 2: Electronics Reseller (Mixed B2B/B2C)
Before VAT Registration:
- • Buy from VAT-registered suppliers
- • Pay VAT but cannot reclaim
- • Higher effective cost base
After VAT Registration:
- • Can reclaim VAT on purchases
- • B2B customers unaffected
- • May improve profitability overall
Strategic Approaches to VAT Registration
Delaying Registration
- • Keep turnover just under £85k
- • Manage sales timing across tax year
- • Consider business structure changes
- • Monitor threshold closely
- • Risk: Penalties if threshold exceeded
Early Registration
- • Reclaim VAT on startup costs
- • Professional appearance
- • Competitive advantage with B2B clients
- • Get used to VAT processes early
- • Risk: Pricing pressure from consumers
VAT Compliance Requirements
Once VAT registered, you have ongoing compliance obligations:
Quarterly VAT Returns
Submit VAT returns and payments quarterly. Late submission incurs £100+ penalties. Returns must be submitted online via HMRC's website.
Record Keeping
Keep VAT records for 6 years. Must include VAT invoices, receipts, bank statements, and detailed sales records. Consider using accounting software for accuracy.
VAT Invoices
Must issue VAT invoices for B2B sales over £250. Include VAT number, amount of VAT, and clearly separate VAT from the net amount.
Digital Services and VAT
With most resellers now using online platforms, understanding digital VAT rules is important:
Platform VAT Considerations:
- Some platforms (like Amazon) may collect VAT on your behalf
- You're still responsible for compliance and record-keeping
- Platform fees may include VAT that you can reclaim
- Cross-border sales have additional VAT implications
- Digital receipts are acceptable for VAT purposes
Monitoring Your VAT Threshold
Many resellers accidentally exceed the VAT threshold because they don't track turnover across all platforms properly. The £85,000 includes all sales revenue, regardless of which platform or method you use to sell.
What Counts Towards VAT Threshold:
- All sales across ALL platforms (eBay, Amazon, Vinted, etc.)
- Local sales (Facebook Marketplace, car boots)
- B2B wholesale sales
- Any goods or services sold in the course of business
- Gift and promotional items given away
- Goods used for personal use (taken from stock)
This is where KamDar becomes essential for growing resellers. Instead of manually tracking sales across multiple platforms and trying to calculate your rolling 12-month turnover, KamDar automatically aggregates all your sales data and alerts you as you approach the VAT registration threshold.
Getting Professional VAT Advice
When to Seek Professional Help:
- When approaching £70,000+ annual turnover
- If considering voluntary VAT registration
- When choosing between VAT schemes
- For complex sourcing arrangements
- If facing a VAT inspection
- When planning business structure changes
VAT rules are complex and change regularly. This guide provides general information only. Always consult with a qualified accountant or tax advisor for advice specific to your circumstances before making VAT registration decisions.