VAT - **** 'em

[mcdk2]

Please clarify.
The way you guys are complaining, tipping over the threshold seems to cripple you.
That must mean that £1 over the threshold means you have to pay tax on every £ earned.
Is that right?
Or are you just paying the tax on the £ over threshold, in which case it's a fair cop.
Thanks

[Steve H]

mcdk2 said:

Please clarify.
The way you guys are complaining, tipping over the threshold seems to cripple you.
That must mean that £1 over the threshold means you have to pay tax on every £ earned.
Is that right?
Or are you just paying the tax on the £ over threshold, in which case it's a fair cop.
Thanks

In the first instance it is about what tax you are charging rather than what you are paying.

Once you are vat registered you have to charge 20% vat on all your sales (unless exempt). This effectively means either adding 20% on or lowering your net price to compensate.

The flipside is that you can also claim back the vat on any business purchases so the end effect will vary significantly between different businesses.

If you charge mostly/entirely for a service and have relatively few outgoings that you can claim back then it will have a sizeable direct effect either to your prices or your profit. This is pretty much the theme of the thread.


If you mainly sell goods then you are probably paying vat on your purchase price even if you are not vat registered so presumably will be passing this cost on to your customers anyway, the only part that they are not really paying vat on is your added margin. But typically businesses like that need a higher turnover to get the same profit as a service business so they are more likely to be registered anyway.

[MattsCar]

mcdk2 said:

Please clarify.
The way you guys are complaining, tipping over the threshold seems to cripple you.
That must mean that £1 over the threshold means you have to pay tax on every £ earned.
Is that right?
Or are you just paying the tax on the £ over threshold, in which case it's a fair cop.
Thanks

You pay VAT on EVERYTHING.

I will give a very basic example below as to why people might want to stay under it.

Tradesperson working roughly 32 hours a week, charging £50 an hour, who mainly serves the general public, spends £30k a year on expenses, materials/ fuel etc.

If he is bang on £85,000 (the threshold) a year, he will receive £55k a year profit before tax.

If he were to go VAT registered, but still turnover £85,000 including VAT (assuming he does not put his prices up and absorbs the VAT cost himself) he would be able to claim VAT input of 20% on the £30k of expenses, so £6k, but would have to pay output VAT on the £85,000 turnover which is £17k.

So, £17k- 6k = £11k to the tax man, however VAT is a deductible expense so £11,000 @ 20% will lower his self assessment tax bill £2,200 and his profit is now £46.2k a year and he is £8,800 worse off.

There are two choices.

Put prices up by 20%, however, in this case, he deals with the general public and the increase in price means he will get less custom.

or

Take on more jobs, in order to match the pre-VAT registration profits and then some more to make it actually worthwhile being on VAT and then to cover the cost of any other expenses such as accountants or making tax digital software to submit VAT returns.

Edited by MattsCar on Sunday 4th February 13:55

[DSLiverpool]

Leptons said:

My eldest goes to Dance lessons one night a week. All us parents have just had to stomach a 20% increase because they’ve just gone VAT registered. Pisses me off, it’s a kids extra curricular activity ffs!

Should be 11% unless something unusual is purchased.

[snuffy]

DSLiverpool said:

Leptons said:

My eldest goes to Dance lessons one night a week. All us parents have just had to stomach a 20% increase because they’ve just gone VAT registered. Pisses me off, it’s a kids extra curricular activity ffs!

Should be 11% unless something unusual is purchased.

Where does the figure of 11% came from ?

[DSLiverpool]

snuffy said:

Where does the figure of 11% came from ?

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

[snuffy]

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.

[Eric Mc]

In many cases now, the Flat Rate Scheme is more expensive for the business than if they used the "normal" VAT methods.

[snuffy]

Eric Mc said:

In many cases now, the Flat Rate Scheme is more expensive for the business than if they used the "normal" VAT methods.

Indeed. I swapped back a few years ago.

At 14.5% for me, which is of course 14.5% of 120% of sales, that's actually 17.4%. And you can't claim anything back either of course. It's crap.

[DSLiverpool]

Eric Mc said:

In many cases now, the Flat Rate Scheme is more expensive for the business than if they used the "normal" VAT methods.

Quite a big saving in accountancy fees though Eric

[Eric Mc]

DSLiverpool said:

Eric Mc said:

In many cases now, the Flat Rate Scheme is more expensive for the business than if they used the "normal" VAT methods.

Quite a big saving in accountancy fees though Eric

Most of my clients do their own VAT so of no consequence to me at all.

[Forester1965]

With modern accounting software doing the VAT return is no more complicated than pressing a couple of buttons. Same with payroll.

[Eric Mc]

Forester1965 said:

With modern accounting software doing the VAT return is no more complicated than pressing a couple of buttons. Same with payroll.

If only

Some businesses have very complicated VAT requirements.

Assuming that software solves everything can be very dangerous (ask any Post Office Sub-Postmaster).

[JustGetATesla]

Again, if you have to buy stuff for your business (products, parts, components etc) then it makes far more sense to be VAT registered and claim it all back. Yes you have to charge your customers VAT but that is what you do when you're running a business.

Its hardly as if VAT is difficult. Quickbooks takes care of everything on both of my businesses. A quick scan over the VAT report when submitting to make sure there's nothing obviously missing - or there which shouldn't be. Click to submit, off it goes.

VAT repayments has been handy for cash flow in the early phase of our retail business. Money back on stock before it starts turning over.

[Eric Mc]

JustGetATesla said:

Again, if you have to buy stuff for your business (products, parts, components etc) then it makes far more sense to be VAT registered and claim it all back. Yes you have to charge your customers VAT but that is what you do when you're running a business.

Its hardly as if VAT is difficult. Quickbooks takes care of everything on both of my businesses. A quick scan over the VAT report when submitting to make sure there's nothing obviously missing - or there which shouldn't be. Click to submit, off it goes.

VAT repayments has been handy for cash flow in the early phase of our retail business. Money back on stock before it starts turning over.

Do not assume that the VAT circumstances you deal with are the same for everybody.

VAT can be massively complex for certain types of business. VAT rules are extremely complex for certain areas.

[Forester1965]

Eric Mc said:

If only

Some businesses have very complicated VAT requirements.

Assuming that software solves everything can be very dangerous (ask any Post Office Sub-Postmaster).

It was said on an all else being equal basis on the mechanics of submitting returns. I wouldn't claim software solves everything.

Of course not all VAT matters are simple, but once you've taken professional advice on the VAT status of your purchases/supplies, simply operating your VAT returns, for most businesses, is a simple affair and not onerous.

One of my old businesses had a complex relationship with VAT, relating to financial services exempt supply intermediation and about a million quid at stake when we were negotiating with HMRC. At £500 an hour our VAT consultants were certainly more useful, albeit expensive, than a monthly subscription to Xero!

[Eric Mc]

Precisely. VAT can be a minefield.

Even smaller businesses can have complex VAT issues.

The saving grace for most businesses these days is that HMRC does not operate VAT Compliance Visits any more so people can be doing things incorrectly and never realise they are.

For example, I can tell you from experience that many, many people incorrectly completed their "simplified" Flat Rate VAT returns and HMRC never noticed.

[Forester1965]

Tell me about it. Our old FD cocked up one cell of a spreadsheet relating to reverse changes on digital marketing and missed out a six figure sum of VAT one quarter.

[paulrockliffe]

Eric Mc said:

The saving grace for most businesses these days is that HMRC does not operate VAT Compliance Visits any more so people can be doing things incorrectly and never realise they are.

This isnt even remotely true.

[Olivera]

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.