How does VAT work?
Discussion
Hi all,
Can anyone explain how VAT works on small businesses?
If a company turns over £100k is it payable on the whole £100k or just the £15k that’s above £85k threshold?
If my company turned over £100k with £80k profit would I pay £20k VAT and then another £19k corporation tax? Leaving £41k?
I assume I’ve gone wrong somewhere above?
Thanks in advance.
Can anyone explain how VAT works on small businesses?
If a company turns over £100k is it payable on the whole £100k or just the £15k that’s above £85k threshold?
If my company turned over £100k with £80k profit would I pay £20k VAT and then another £19k corporation tax? Leaving £41k?
I assume I’ve gone wrong somewhere above?
Thanks in advance.
Does this qualify for the flat rate scheme?
If so the amount you pay HMRC may differ from what you collect.
As above - value of goods/services = £1000
Invoice to customer - £1000 plus VAT of £200 = £1200 total (VAT is separately identified and invoice must quote some information including VAT number) Don't worry about the customer, if he is VAT registered he will be claiming it back from HMRC.
Normal scheme you send £200 to HMRC (quarterly IIRC), on flat rate scheme you pay a percentage of turnover but this makes the accounting simpler but you can't recover VAT on purchases so it may not suite your business.
Your sales, and hence profit, are based on the pre-VAT figure and VAT has no effect on them.
Talk to your accountant, if you are getting into the realms of VAT it is worth having one.
If so the amount you pay HMRC may differ from what you collect.
As above - value of goods/services = £1000
Invoice to customer - £1000 plus VAT of £200 = £1200 total (VAT is separately identified and invoice must quote some information including VAT number) Don't worry about the customer, if he is VAT registered he will be claiming it back from HMRC.
Normal scheme you send £200 to HMRC (quarterly IIRC), on flat rate scheme you pay a percentage of turnover but this makes the accounting simpler but you can't recover VAT on purchases so it may not suite your business.
Your sales, and hence profit, are based on the pre-VAT figure and VAT has no effect on them.
Talk to your accountant, if you are getting into the realms of VAT it is worth having one.
Edited by IJWS15 on Monday 2nd December 17:48
JapanRed said:
It’s defo not an IR35 issue as my accountant ran this past HMRC a few years back and they were satisfied.
Not a guarantee.Read up on the Dragonfly Ltd case.
Regarding turnover, I assumed that because the OP was asking about VAT registration that he must be already over the £85,000 threshold. Subsequently, the fact that he now tells us that HMRC also believes he should be VAT registered confirms that.
JapanRed said:
I’m really worried that I’m gonna get a mega bill for the backdated VAT if I lose the case....
Interesting. So if the worst happens, would you have a right to go back to all the clients you didn't charge VAT to and say 'Er actually, would you mind sending another 20%? If they are VAT registered they can claim it right back and you can pay the VAT bill and break even.Simpo Two said:
JapanRed said:
I’m really worried that I’m gonna get a mega bill for the backdated VAT if I lose the case....
Interesting. So if the worst happens, would you have a right to go back to all the clients you didn't charge VAT to and say 'Er actually, would you mind sending another 20%? If they are VAT registered they can claim it right back and you can pay the VAT bill and break even.Eric Mc said:
Absolutely he can do that. However, many customers would be unwilling to go along with that - especially if they happen to be non-VAT registered..
Agreed - though he could blame it on the HMRC. If he didn't want to keep the client, how would look to the judge if an unpaid 'secondary' invoice ended up in small claims I wonder?
Eric Mc said:
JapanRed said:
It’s defo not an IR35 issue as my accountant ran this past HMRC a few years back and they were satisfied.
Not a guarantee.Read up on the Dragonfly Ltd case.
Regarding turnover, I assumed that because the OP was asking about VAT registration that he must be already over the £85,000 threshold. Subsequently, the fact that he now tells us that HMRC also believes he should be VAT registered confirms that.
Yes turnover was well over £85k for a couple of years. The annoying thing is that moving forward turnover will be under £85k and has been for several months now (before this issue kicked off).
Simpo Two said:
Eric Mc said:
Absolutely he can do that. However, many customers would be unwilling to go along with that - especially if they happen to be non-VAT registered..
Agreed - though he could blame it on the HMRC. If he didn't want to keep the client, how would look to the judge if an unpaid 'secondary' invoice ended up in small claims I wonder?
JapanRed said:
Just read up on Dragonfly case. My business is nothing like that. I work for multiple providers, picking and choosing what days and hours I work each week. Some weeks there is no work and I don’t do anything - multiple contracts have ended with less than a weeks notice. I don’t have any concerns over IR35.
Yes turnover was well over £85k for a couple of years. The annoying thing is that moving forward turnover will be under £85k and has been for several months now (before this issue kicked off).
Has this issue been caused by confusion as to whether the nature of what you do is Zero Rated for VAT or VAT Exempt?Yes turnover was well over £85k for a couple of years. The annoying thing is that moving forward turnover will be under £85k and has been for several months now (before this issue kicked off).
How much of your sales is/was potentially Standard Rated?
Eric Mc said:
JapanRed said:
Just read up on Dragonfly case. My business is nothing like that. I work for multiple providers, picking and choosing what days and hours I work each week. Some weeks there is no work and I don’t do anything - multiple contracts have ended with less than a weeks notice. I don’t have any concerns over IR35.
Yes turnover was well over £85k for a couple of years. The annoying thing is that moving forward turnover will be under £85k and has been for several months now (before this issue kicked off).
Has this issue been caused by confusion as to whether the nature of what you do is Zero Rated for VAT or VAT Exempt?Yes turnover was well over £85k for a couple of years. The annoying thing is that moving forward turnover will be under £85k and has been for several months now (before this issue kicked off).
How much of your sales is/was potentially Standard Rated?
All of the sales will be the same, in mine and my accountants (and the specialist tax company fighting my case) it’s 100% exempt. HMRC have made a very quick decision and state it’s 100% standard rate. The tax company fighting the case have drafted a 3 page response highlighting why we believe it’s all exempt.
Best scenario is that they accept our response but what happens if both parties disagree? Assume a judge will decide?
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