VAT ho ho ho

[feemish]

Hi,

I'm just starting to look at VAT as I might be approaching the threshold this year. Customs and Excise have sent me a 'loaf' of booklets to plough through..

I cant get my head round the first block..

Your turnover reaches say £70000, you then have to charge VAT on 'ALL' your sales.
Now i couldnt pass the vat on to my customers as i would no longer be competitive, so i'd have to include it in my price already.
So as soon as i hit the limit, I'm losing 17.5% to the government on every sale?!

The amount of VAT I'll get coming in, wont come near to equalling what i'll charge out..

I dont see how it works. Why am i going to increase my sales over £70000 if i'm going to start losing money, and wont see the profit repaired until i reach £82250 ( add 17.5% of 70000) and then i'll be back to making what i was at £70000

Am i missing something or being dim?
Coz at the moment I'm thinking it makes more sense to just close the shops and go on holiday once i get near £70000.

Anyone been there can explain?

[Duncan Rounding]

You only pay VAT on the difference between your Cost of Sales (COS) and your Sales - Output tax less Input tax - in other words essentially on the profit. So if your COS was £50K say then your VAT due would be 17.5% of £20K, not on £70K.

[Ginnys Attic]

If an item cost's you for example £5 plus VAT you pay the supplier £5.88 (88p VAT) if you then sell that item for £10 the VAT from the £10 sale is £1.49 therefore the difference between VAT paid and VAT collected is 61p and that is the amount of VAT to pay the governement. Also don't forget if you are VAT registered you can claim the VAT paid on various other expensis such as the VAT paid when purchasing Actinic for example so it's not quite as cut and dry as you'll make less money on every sale.

[leehack]

There is a starter vat scheme where you charge 17.5%, but only have to pay back 5%, have a look into that. You do not have to go vat registered as soon as soon as you break the threshold. Although, I tend to agree with you if you are only just going over, the extra accountancy costs and the extra hassle of vat are not worth it, just have some time off as you say.

Its not all grim news though, having to go vat registered is a sign of a business going in the right direction and if you are going to get towards the top players in your marketplace, its a stepping stone that they will all have taken too.

IMO hold off for as long as possible, but make sure you do not hold the business back from growth by doing so.

[completerookie]

you don't say what business you have started, but don't forget the following

You can generally reclaim VAT on goods you bought up to three years before you registered for VAT, and services you bought up to six months before you registered.

this can mount up quite quickly, you may do some calcs here and decide its worth registering to get all your old vat back.

[parklifeclothes]

Depending on the products you are selling, you can, like us get a sizeable refund each quarter . As the majority of our products are exempt we are paying very little but all our expenses that have vat added are then claimed back, such as supplies, diesel, computer hardware/software. Most quarters we get somewhere around £600/£700 refunded what is a nice bonus.
Talk to your accountant as they can normally work out the best way and tell you when it is best to make large purchases for maximum benefit.

[guccij]

There is a starter vat scheme where you charge 17.5%, but only have to pay back 5%, have a look into that.

The flat rate scheme is well worth a punt. We started off on the standard input/output VAT scheme, but moved to flat rate earlier this year after we worked out it would save us several hundred pounds a quarter.
There are different flat rates depending on which sector you are in. Ours is 7%. You can't claim back for any business expenses unless they are one-off purchases over £2,000.
It's much easier to administer - took me about 30 mins from start to finish last time I filed a return.
You can stay on flat rate until your turnover reaches £225,000.
The HMRC notice reference for the flat rate scheme is 733.

[Mike Hughes]

Just to expand on what Kevin aid:

You can generally reclaim VAT on goods you bought up to three years before you registered for VAT, and services you bought up to six months before you registered.

But note that this only applies if the goods/items/services have not been complete used up. For example in the case of stock you can only reclaim the VAT on stock items bought in the last 3 years that have not already been sold. And HMRC will want to see a detailed breakdown of any VAT reclaim.

Records you must keep
If you want to reclaim VAT on goods and services you bought before you were registered, you must have a valid VAT invoice or receipt for each item. You must also keep the following records.

For goods
You must keep a detailed stock account of the goods on which you are reclaiming VAT. Your records must show:

a description and quantities of goods you bought and the dates you bought them
when you have used any of the goods you bought to make other goods
when you have disposed of any of these goods after you were registered for VAT

For services
You must keep a detailed account of the services for which you are reclaiming VAT. Your records must show:

a description of the services and the dates when you received them
if any services you received relate to goods you disposed of after you were registered for VAT
We may ask to see these records before you can receive your VAT repayment.

So, yes. It is worth bearing in mind but not a goldmine and quite a bit of work.

Mike

[feemish]

Thanks for your replies and pointers everyone, starting to look less bleak..

[wesleythorne]

local vat and tax office normally do half day seminars, well worth going to to ask questions. Its free as well. I went to one last year, it was mainly small companies from one man bands upwards, good to find out from the the vat man himself about flat rate scheme.

[brian.mc]

Another point to consider is if you sell to other businesses, they will be able to claim back the VAT element of the goods, which will make you more competitive, as they can't claim for purchases from unregistered suppliers.