Sole trader not VAT. registered supplying to VAT. registered businesses

[toblerone]

First post, go easy! I did some searching and couldn't find a similar post.. This is primarily about VAT and is probably VAT 101 to those in the know!

I'm a small-fry sole trader who is not VAT registered. I (re)sell products and services to other organisations (charities / schools who are *not* VAT registered) and some "regular" businesses (who *are* VAT registered). When I issue an invoice the invoice does not include VAT or any reference to VAT apart from a note to say that I'm not VAT registered! I have two questions..

Question One

Some businesses have complained that my services "cost more" because I'm not VAT. registered, i.e. they have to pay the full cost and cannot claim back any VAT. I don't think that this is correct because I'm charging "less" to begin with..

If the service costs €100 I'm just charging €100 whereas a company who is VAT registered would be charging them €123 (= €100 + €23 VAT) and the business would then presumably offset the €23 in their VAT return.

Is my thinking correct or is it somehow beneficial to initially pay VAT and then offset it?

Question Two

This one relates to purchases for resale.. As I'm not VAT registered I have to pay VAT on purchases and cannot reclaim it. If I purchase something for resale the price I pay includes VAT. When I resell it the price on the invoice includes my cost price (which originally included VAT) plus a mark-up but obviously no additional VAT.

If the product costs me €123 (= €100 Net + €23 VAT), I add a mark-up of €27 then I'm charging the business €150 (= €123 Cost + €27 Mark-Up). What would a company who is VAT registered be charging based on the same cost and mark-up? Is it as simple as €156.21 = ((€100 Cost + €27 Mark-Up) + €29.21 VAT)

In the above scenario the product would appear to be "costing more" from me because they cannot reclaim any VAT. Is my thinking correct? Is there anything I / they can do?

Any help / advice is much appreciated

 

[WindUp]

Question 1 - you are correct - Only thing I could suggest is that they pay the 3rd party directly bit you charge a sourcing fee

Question 2 - your markup is €27/€123 = 23%

A VAT registerd Company would charge €100 + Markup of €23 (23%) = €123 & VAT €28 = €151

 

[toblerone]

@WindUp Thanks for the reply to both questions. With Q1 there appears to be a "saving" by reclaiming VAT but in reality they are paying the same because the VAT is not being charged in the first place.

I'm was a bit confused by your answer to Q2 at first but I think I get what you're saying.. You've calculated my mark-up as a percentage rather than just an amount. If the VAT registered company is adding the same mark-up *amount* of €27 then my calculation holds, I think.

In summary, a VAT registered business buying products off me (who is not VAT registered) has to pay 23% (the VAT rate at time of sale) more for those products and there is nothing I / they can do about it. One possible work-around would be for them to pay my supplier directly and me charge a "sourcing fee".