VAT - **** 'em

[Pistom]

2 things I didn't realise.

1. That VAT can be complex. Isn't it just a case of charging VAT at the appropriate rate, claiming back VAT on business costs and settling the difference with HMRC every quarter?

2. That HMRC don't check compliance. How do they know you're doing it right?

[Pit Pony]

robinh73 said:

I run a tree surgery business and have this year just gone over the VAT threshold. I have a mix of personal and business customers and while the business ones can claim the vat back, the personal ones cannot do so. This is going to cause issues as I will be 20% more expensive in an already very competitive sector. I am just hoping that it won't be as much of an issue as I fear it may be.

Consider the flat rate scheme?

[Steve H]

Pistom said:

2 things I didn't realise.

1. That VAT can be complex. Isn't it just a case of charging VAT at the appropriate rate, claiming back VAT on business costs and settling the difference with HMRC every quarter?

2. That HMRC don't check compliance. How do they know you're doing it right?

1. There will be exceptions but for most businesses that is pretty much how it works.

2. They used to do routine checks on most/all businesses a while after they registered. When I started out it was a given that you would probably be inspected within the first couple of years and sure enough after 18 months I was.

But 30+ years on, HMRC staffing levels are different, a lot of monitoring is computerised, inspections are more targeted, and some might suggest that like most government departments, more of their energy is spent on auxiliary tasks than used to be the case instead of doing the core job.

I would be surprised if random checks were now completely extinct but I don’t think they are routine or widespread any more.

[Chamon_Lee]

snuffy said:

DSLiverpool said:

snuffy said:

Where does the figure of 11% came from ?

https://www.gov.uk/vat-flat-rate-scheme/how-much-you-pay

Yes, I was looking at that, so what would a dance lesson thing come under ? The 11% ones are:

Advertising
Agricultural services
Photography
Publishing
Social work
Veterinary medicine


But regardless of the category, the idea of flat rate VAT is to simplifying your accounting effort, not so you can make more profit. So with flat rate VAT, you still have to charge 20% VAT to your customers, you don't change them the flat rate.

Exactly this - it doesn't mean you pay less it just makes it easier admin. I done the sums on this many moons ago when I was on the flat rate scheme and comparing the flat rate vs tradition method it was always super close to the amount it would have been anyway.
HMRC aren't going to be giving out freebies!

[Chamon_Lee]

Olivera said:

The VAT threshold should be reduced to say 10k, in other words an assumption can be made that any kind of full time business should be charging it, or just reduce it to zero.

You can't be serious?
Hell of a way to kill off the spirit of starting a business.
Or why don't we increase it to 100K - all our cost banding seems to shot up no problem surely the relief bandings should too

[Mandat]

Chamon_Lee said:

Olivera said:

The VAT threshold should be reduced to say 10k, in other words an assumption can be made that any kind of full time business should be charging it, or just reduce it to zero.

You can't be serious?
Hell of a way to kill off the spirit of starting a business.
Or why don't we increase it to 100K - all our cost banding seems to shot up no problem surely the relief bandings should too

I think that lowering the threshold would be the better way forwards, as it removes the cliff edge effect that has been the talk of this thread.

By having a low threshold, every genuine business starts at the same level playing field, and alleviates the consumer price jump between firms that are VAT & non-VAT registered.

[Forester1965]

It also cuts out all the "I only work 4 days a week" or "cash only for some jobs" or splitting businesses stuff that people do to avoid the threshold.

Think how the VAT threshold is literally stifling the economy as people who could do more business choose not to to avoid what is an arbitrary line in the sand.

[Pistom]

The level hasn't changed for years so in effect it's being reduced anyway but I think a sure fire way to lose the next election is to suggest removing it altogether.

Currently, there's many services which don't charge VAT from fitting an outside tap to renting a holiday let - add 20% onto those and the man on the Clapham omnubus feel it.

[deggles]

Steve H said:

Pistom said:

2 things I didn't realise.

1. That VAT can be complex. Isn't it just a case of charging VAT at the appropriate rate, claiming back VAT on business costs and settling the difference with HMRC every quarter?

2. That HMRC don't check compliance. How do they know you're doing it right?

1. There will be exceptions but for most businesses that is pretty much how it works.

2. They used to do routine checks on most/all businesses a while after they registered. When I started out it was a given that you would probably be inspected within the first couple of years and sure enough after 18 months I was.

But 30+ years on, HMRC staffing levels are different, a lot of monitoring is computerised, inspections are more targeted, and some might suggest that like most government departments, more of their energy is spent on auxiliary tasks than used to be the case instead of doing the core job.

I would be surprised if random checks were now completely extinct but I don’t think they are routine or widespread any more.

I had a VAT registered company from 2007-2021. I only ever had one VAT inspection, entirely-un-coincidentally around the time I first claimed a quarterly refund As long as you're handing over a few £k each quarter that loosely tallies with turnover, I don't think you're on the radar. With MTD they have a lot more these days for spotting anomalies algorithmically.

[Leptons]

Mandat said:

I think that lowering the threshold would be the better way forwards, as it removes the cliff edge effect that has been the talk of this thread.

By having a low threshold, every genuine business starts at the same level playing field, and alleviates the consumer price jump between firms that are VAT & non-VAT registered.

You want to voluntarily pay more VAT?

[Eric Mc]

Pistom said:

2 things I didn't realise.

1. That VAT can be complex. Isn't it just a case of charging VAT at the appropriate rate, claiming back VAT on business costs and settling the difference with HMRC every quarter?

2. That HMRC don't check compliance. How do they know you're doing it right?

If only it was simple.

First of all, there are different categories of transactions which attract differing rates of VAT. You need to know what category the transaction falls into and then apply the correct rate.

You also need to know, when no VAT is being applied, WHY no VAT needs to be applied. There are three basic categories where VAT isn't applied -

Zero Rate
Exempt
Outside the scope

You need to know whether you are applying the correct rules and categories because this also has an impact on whether you can reclaim all the VAT that you are being charged on items purchased from your suppliers.

In some businesses, there are com,plicated "reverse charge" rules.

There are also rules regarding how VAT is charged (or not) when dealing with overseas customers.

Some businesses can have very complex rules applying to them because of the nature of what they do and sell -

second hand car dealers
antique dealers
package holidays suppliers
general grocery shops/supermarkets

As for compliance checks - they were once very common. Most traders expected a com,plince check once every three or four years. That doesn't happy any more.

[Eric Mc]

Chamon_Lee said:

Olivera said:

The VAT threshold should be reduced to say 10k, in other words an assumption can be made that any kind of full time business should be charging it, or just reduce it to zero.

You can't be serious?
Hell of a way to kill off the spirit of starting a business.
Or why don't we increase it to 100K - all our cost banding seems to shot up no problem surely the relief bandings should too

It would actually work the opposite to what you think. As mentioned earlier, most countries have very low registration thresholds. Some have none at all.

[Pistom]

Eric Mc said:

If only it was simple.

Very well explained. Thank you.

[Saweep]

I have a group of clients that offer zero rated services.

Most of their costs are vattable.

HMRC DO NOT like to issue vat refunds. One of them now has a very lengthy and expensive investigation with HMRC, with HMRC just being aholes about the entire set up.

It seems awfully unfair given that everything they are doing is perfectly legal (their services are black and white zero rated on the gov website) and what their accountant has told them to do.

En masse, they are now considering just not reclaiming anything and swallowing the vat portion of their costs...I dont even know if that's legal either.

I guess HMRC gets what they want that way, no refunds!

[Eric Mc]

If a business only ever claims VAT refunds, they will be targetted more frequently for VAT inspections or compliance visits.

However, if trhe reclaims are legitimate, they have nothing to fear and should just keep claiming as normal.

[Sy1441]

robinh73 said:

It is something I have fought to stay under but this year has been too successful! It is a nice situation as the business is only 5 years old but it is a pain all the same. I have a meeting with my accountant to see what we can do.

Not entirely true. At any point in time I've got around £150k of VAT sitting uncollected in one of my businesses which helps with cash flow.

[Pistom]

Saweep said:

I have a group of clients that offer zero rated services.

Most of their costs are vattable.

HMRC DO NOT like to issue vat refunds. One of them now has a very lengthy and expensive investigation with HMRC, with HMRC just being aholes about the entire set up.

It seems awfully unfair given that everything they are doing is perfectly legal (their services are black and white zero rated on the gov website) and what their accountant has told them to do.

En masse, they are now considering just not reclaiming anything and swallowing the vat portion of their costs...I dont even know if that's legal either.

I guess HMRC gets what they want that way, no refunds!

My experience of HMRC is they just want the right amount either way. I've never felt it's personal - they're just doing a job.

[Pit Pony]

Forester1965 said:

It also cuts out all the "I only work 4 days a week" or "cash only for some jobs" or splitting businesses stuff that people do to avoid the threshold.

Think how the VAT threshold is literally stifling the economy as people who could do more business choose not to to avoid what is an arbitrary line in the sand.

Just had some work done on my roof, by a sole trader. Not Vat registered.
Turned up to do the work with another guy in a Van with completely different livery, also a sole trader
Turns out that's his brother in law and he's "having to" use his van this week, because his is being repaired.
In passing over the next day I found out that that pretty much work on each others jobs. So rather than run one VAT registered business with 2 people in partnership, they are clearly running 2 none vat registered businesses, as sole traders. Or that's my assumption.

[MrJuice]

I used to run a business where I'd buy stock and sell to a UK company. That company would export most of their stock and so had huge vat refunds. They didn't have issues because there was a paper trail for everything

One of my suppliers was a Spanish company. This is 2015/16

They would buy from Spanish businesses and pay vat. They'd export to me in the UK and not charge vat which was fine given it was a business to business transaction. They should have gotten vat refunds from the Spanish exchequer but they refused citing fraud. There was no fraud. They just didn't want to reduce their vat income. These were large sums of money. I don't think he ever got it back, despite the Spanish exchequer asking our HMRC for my records (which I gave) which showed that I had sold the goods received to a UK company. These were items that had individual serial numbers

[Ham_and_Jam]

Pit Pony said:

Just had some work done on my roof, by a sole trader. Not Vat registered.
Turned up to do the work with another guy in a Van with completely different livery, also a sole trader
Turns out that's his brother in law and he's "having to" use his van this week, because his is being repaired.
In passing over the next day I found out that that pretty much work on each others jobs. So rather than run one VAT registered business with 2 people in partnership, they are clearly running 2 none vat registered businesses, as sole traders. Or that's my assumption.

Maybe, but can’t see anything wrong with that.

They are both entitled to run and operate their businesses financially separately.

Trades often help each other out