Industry sector: Retail and wholesale

Mobile phones: VAT

Mobile phone shops and VAT

You will have to register for VAT if your taxable sales are likely to be above the current VAT threshold. You will then have to charge VAT at the standard rate of 20% on the goods you sell - this is known as 'output tax'. You will be able to reclaim any VAT you pay on purchases - this is known as 'input tax'.

Every quarter you will pay HM Revenue & Customs (HMRC) the difference between:

  • all the output tax you have charged
  • all the input tax you have paid on your purchases

Nearly all businesses have to pay their VAT bill electronically - for example by direct debit or online banking. HMRC allows you some time at the end of each quarter before you have to pay the VAT due. So, for example, the VAT due on sales made in months one, two and three would be paid at the end of month four. Your VAT return will show your payment deadline date.

Businesses that are having trouble making their VAT payments, or are worried that future payments will cause them problems, can ask for help from the HMRC Business Payment Support Service. If your business needs this financial assistance to tide it over, HMRC will look at your situation and discuss temporary options that could help out. These could include letting you make payments over a longer period and waiving late payment surcharges. To discuss payment problems with HMRC you can call the Business Payment Support Service Helpline on 0300 200 3835.

Most of the goods and services you offer will be standard rated, but magazines are currently zero rated.

If you plan to deal in a significant amount of second-hand handsets and accessories you might want to use the second-hand margin scheme. This allows you to calculate how much VAT is due by reference to the difference between what you pay for the goods and what you sell them for (your 'margin') instead of on the full retail value of the goods. The margin includes the VAT due.

Be very careful not to become involved in any 'missing trader' fraud. Typically, this would involve a company offering to sell you phones at a discounted price and then another company approaching you offering to buy the same type of goods very shortly afterwards. You could find yourself the only business that HMRC can trace and if they can show that you ought to have realised that fraud was being committed they can collect all the outstanding VAT from you. Generally it is best to work on the principle that if a deal looks too good to be true, it probably is.

Further information

You can contact the VAT Helpline on 0300 200 3700 to request further guidance and there are helpful leaflets available on the website, including VAT Notice 700/1, Should I be Registered for VAT? and Notice 718, The VAT Margin Scheme and global accounting.

The helpline will also be able to advise you on using one of the retail Schemes. These Schemes are used by businesses that deal mainly with members of the public.

You will have estimated your monthly sales income. Now you should decide whether you must register for VAT. If so estimate the approximate amount of VAT that you will have to pay every quarter.

Making Tax Digital (MTD) for VAT

Under HMRC's Making Tax Digital initiative, VAT-registered businesses with taxable turnover above the VAT threshold must keep records digitally and use special software to submit their VAT returns. You can find out more about MTD on the website.

Alternative flat rate scheme

You might be interested in an optional flat rate scheme (FRS) for eligible small businesses. Under this scheme you continue to issue tax invoices to VAT registered customers, but the VAT payable every quarter is calculated as a percentage of your VAT-inclusive turnover. You apply the appropriate flat rate percentage for your type of business. However, this scheme cannot be used with the retail schemes, the margin scheme for secondhand goods or the cash accounting scheme. You can find full details of the FRS, who can use it, and the flat rate percentages in VAT Notice 733, Flat rate scheme for small businesses. It will help you to decide whether or not the scheme is suitable for you.