Becoming VAT registered, who puts the whole 20% on top of prices?

[claire bear]

I'm really confused as what to do on becoming vat registered. To put a whole 20% price increase ontop of all treatments is just way too much and will lose clients so just wondering if anyone has done this and if it has worked for them or do you think it would be better to just put a slight increase and then just have to take the hit for the rest. Any advice would be greatly appreciated x

 

[Emily Case]

Could you just lower your prices and then add the 20% to make it up to what you were charging before?

Or write on your price list, "prices include VAT"?

I'm not sure how it works but just a thought

xxx

 

[claire bear]

I have to pay the 20% percent over to the vat van it has to be put ontop

 

[claire bear]

Vat man lol I meant

 

[Tomme]

Think I get what purdy means. Lower your prices by 20% so when the vat is applied its normal xoxo

 

[claire bear]

I don't think it works like that..... For example I currently charge £20 for a shellac so when vat registered I automatically will have to pay £4 out of that to vat. If I reduced my price to £16 which I think is what your suggesting I would have to pay 20% of £ 16 instead so would be even worse off

 

[Emily Case]

Oh, right... That's a bit of a bummer?
I was thinking from a client point of view.

Thanks for explaining it though

xx

 

[claire bear]

It's ok thanks for your suggestion x

 

[shazzawilson]

Also you should look into paying small business VAT which is less than 20%. Your accountant should be able to advise. Or contact Revenue and Customs, they can send you the relevant on this scheme. It'll save you with a lot of paper work and can work to your advantage.

 

[claire bear]

Yes I've read about that its called fixed rate the only difference is you can't claim anything back so you end up worse off x

 

[shazzawilson]

Yes I've read about that its called fixed rate the only difference is you can't claim anything back so you end up worse off x

Not necessarily. It depends on what rate you are on and how much you spend on products. I found it worked to my advantage, but everyone's circumstances are different. I was on 11% so my spend on products didn't outweigh the earnings I was making. And I was able to do my own VAT return so not having to pay my accountant. Hope this helps.

 

[claire bear]

Is 11% the set rate or is there different rates. Also are you a limited company x

 

[shazzawilson]

There are different rates and it depends on what R&C say your category comes under, and yes I was a ltd comp. Ring them up and see what they say. More knowledge is better than not having the right facts, which means you can make the right decision for yourself.

 

[MrsHBeauty]

as we are a labour based industry I think being on a fixed rate is beneficial from what Ive researched.

Could you put your prices up 10% and you pay the other 10% meeting half way you'll still be worse off but you wont risk losing clients (well hopefully)

x

 

[ssuk]

Im sure you have to show on the clients reciept how much of.the payment was vat?

Sent from my GT-S5830i using SalonGeek

 

[claire bear]

as we are a labour based industry I think being on a fixed rate is beneficial from what Ive researched.

Could you put your prices up 10% and you pay the other 10% meeting half way you'll still be worse off but you wont risk losing clients (well hopefully)

x

Yes this is what I thought would be probably be the best option x

 

[claire bear]

Anybody else?

 

[crazybek]

Hi.

Our reciepts show what client has paid and underneath it states vat amount.

Unfortunatly we are in an industry which is classed as retail services which is why we have to pay vat on labour.

I say go with the 10 % thing.
Dont forget once your vat registered you will be able to claim back vat on stock,uniform,petrol etc etc so although your only putting prices up by 10%,you will eventually gain the other 10 % back so wont be a direct loss if that makes sense
x

 

[jay_g]

Hi,

I am very sure that the fixed rate VAT that is lower than 20% is a definite route that you should be looking at, I would be very surprised if you were not better off.

Try not to presume that cause your not claiming back on your purchases that you are losing out, its just the better of the 2 evils.

Another way to look at it is that your not losing the vat from your profit even if you keep your prices the same, its just that compared to your competition who are probably already VAT registered you have been enjoying extra profitability than them until now.

I know its easy to say as once you get used to certain turnover with its associated profits a hit by the VAT man every month gives a sour taste but depending on your business and potential turnover it is sometimes better to stay just under the VAT threshold and settle for that amount of yearly income otherwise you have to push your business hard to at least get your turnover to exceed the Vat threshhold by 10-20% just to be at the same profit.

Hope that waffle made some kind of sense!

 

[jay_g]

I'm really confused as what to do on becoming vat registered. To put a whole 20% price increase ontop of all treatments is just way too much and will lose clients so just wondering if anyone has done this and if it has worked for them or do you think it would be better to just put a slight increase and then just have to take the hit for the rest. Any advice would be greatly appreciated x

Hi again,

As a direct answer to your original question here's how I look at it.

You are not in control of your prices !!!

By this I mean that this is a retail business and price lists mean nothing unless realistic.

The price you can charge depends on what the average price of others are charging and what customers deem as reasonable so imagine you are looking at your rivals/competition prices for the first time and you are just starting out. If they are charging £20-£22 then that is probably the limit unless you have some unique selling point that you can justify a bit more.
If you want to be competitive then maybe you should be £18-£20.

What I am getting at is the industry has a natural way of dictating what price you can get away with charging so just because your rent, electric, wages, or in this case the cost for VAT has to come out of your pocket doesnt mean that the retail price will change.

If you were an absolute bargain with your prices before, due to you being more profitable with no VAT then yes you will have to put your prices up but still cant really exceed the going rate that others charge.

Also if you were a bargain before and you do put your prices up, try to still be a bit cheaper than your rivals and hopefully the customers moan for 2 mins and then just realise that you are still worth every penny.