Registering for VAT, who wins? (And is it a PITA?)
Discussion
Happily or sadly, depending on how you look at it, my turnover is heading toward the threshold at which I have to register for VAT. It seems like a massive PITA to me. currently I just keep a spreadsheet of income and expenses and at the end of financial year toddle over to my accountant with it, he prepares a tax return for me to sign, and I get on with my life (and pay the required tax when it is due).
It looks like with VAT you have to account for everything four times a year, pay it, charge it, book keep it, I really don't have the time or the inclination (not that I will have a choice, obviously).
But what really gets me is, who actually benefits? My clients now get charged (say) £1,200 instead of £1,000 (£200 of VAT on the original £1,000), then they claim back the £200 VAT their end. No one seems to actually get that money, it's just a load of paperwork for no purpose surely?
And the biggest irony of all, I'm actually seriously considering winding work down a bit to stay below the threshold - if I do then the government actually make less tax as I'll be earning thus paying less.
More pragmatically, a question for self employed people who don't employ their own company accountants, how much of a pain in the arse is it really? Am I best off winding things down and staying under the threshold?
It looks like with VAT you have to account for everything four times a year, pay it, charge it, book keep it, I really don't have the time or the inclination (not that I will have a choice, obviously).
But what really gets me is, who actually benefits? My clients now get charged (say) £1,200 instead of £1,000 (£200 of VAT on the original £1,000), then they claim back the £200 VAT their end. No one seems to actually get that money, it's just a load of paperwork for no purpose surely?
And the biggest irony of all, I'm actually seriously considering winding work down a bit to stay below the threshold - if I do then the government actually make less tax as I'll be earning thus paying less.
More pragmatically, a question for self employed people who don't employ their own company accountants, how much of a pain in the arse is it really? Am I best off winding things down and staying under the threshold?
Do you sell mainly goods, or services? If it's services then register under the Fixed Rate scheme - you charge the customer the usual 20%, then you pay HMRC a smaller amount (it's different from year 1 then in subsequent years, check the current terms but it's around 13-14%) and you pocket the difference.
Difference is that you can't claim VAT back on anything you purchase "for the company" which is why it works better if you're primarily selling services and don't need to buy much in the way of goods & equipment.
Difference is that you can't claim VAT back on anything you purchase "for the company" which is why it works better if you're primarily selling services and don't need to buy much in the way of goods & equipment.
CAPP0 said:
Do you sell mainly goods, or services? If it's services then register under the Fixed Rate scheme - you charge the customer the usual 20%, then you pay HMRC a smaller amount (it's different from year 1 then in subsequent years, check the current terms but it's around 13-14%) and you pocket the difference.
Difference is that you can't claim VAT back on anything you purchase "for the company" which is why it works better if you're primarily selling services and don't need to buy much in the way of goods & equipment.
That is extremely interesting, thank you. I am services, virtually all of my outgoings is travel.Difference is that you can't claim VAT back on anything you purchase "for the company" which is why it works better if you're primarily selling services and don't need to buy much in the way of goods & equipment.
I use Freeagent software which came free/included with my NatWest account. It's not difficult to keep on top of and photos of VAT receipts are stored within the Freeagent cloud (uploaded using their app). The software counts all the beans and fills in the VAT return form and you can submit it from the Freeagent web page.
Depending on your business type you could get a decent kick-back out of the flat-rate scheme. Alternatively you could make some savings on equipment, travel and accommodation expenses, again depending on the type of work you do.
Depending on your business type you could get a decent kick-back out of the flat-rate scheme. Alternatively you could make some savings on equipment, travel and accommodation expenses, again depending on the type of work you do.
Ari said:
CAPP0 said:
Do you sell mainly goods, or services? If it's services then register under the Fixed Rate scheme - you charge the customer the usual 20%, then you pay HMRC a smaller amount (it's different from year 1 then in subsequent years, check the current terms but it's around 13-14%) and you pocket the difference.
Difference is that you can't claim VAT back on anything you purchase "for the company" which is why it works better if you're primarily selling services and don't need to buy much in the way of goods & equipment.
That is extremely interesting, thank you. I am services, virtually all of my outgoings is travel.Difference is that you can't claim VAT back on anything you purchase "for the company" which is why it works better if you're primarily selling services and don't need to buy much in the way of goods & equipment.
.... but with the flat rate scheme you can be caught under the 'Limited Goods Rate' whereby your goods are less than 2% of your turnover... ie a lot of services companies!!
https://www.gov.uk/vat-flat-rate-scheme/how-much-y...
If you get on that your handing over pretty much all of the VAT you collect for the Government.
I'm an IT Services bod and fall under the Limited Goods Rate so pay 16.5% rather than the 14.5%. I'm looking to come of the Flat rate scheme so I can claim back more that I can on the Flat Rate.
For you, registering will make you instantly more expensive to hire or you'll have to take a 20% pay cut. Either way you will act as the Tax collector!
https://www.gov.uk/vat-flat-rate-scheme/how-much-y...
If you get on that your handing over pretty much all of the VAT you collect for the Government.
I'm an IT Services bod and fall under the Limited Goods Rate so pay 16.5% rather than the 14.5%. I'm looking to come of the Flat rate scheme so I can claim back more that I can on the Flat Rate.
For you, registering will make you instantly more expensive to hire or you'll have to take a 20% pay cut. Either way you will act as the Tax collector!
super7 said:
For you, registering will make you instantly more expensive to hire or you'll have to take a 20% pay cut. Either way you will act as the Tax collector!
This is what bothers me (well, one of the many things!) Will it simply make me more expensive? I'm guessing (and I don't fully understand this stuff) that it won't because the businesses I mostly work with are VAT registered. So presumably they'll simply claim back the extra cost. Which brings me back to how utterly pointless it all is. Who gains?I was VAT registered for about 14 years. It was just two more columns in the cashbook, then do the sums each quarter and send it off. All my clients were VAT registered too so they didn't mind at all; indeed had I NOT been I'd have looked small-time. As your clients are registered too the same applies; you won't be 'more expensive' and you'll quote net of VAT anyway. Just add 'VAT is applicable at the current rate' underneath.
On the plus side YOU can reclaim VAT on everything you buy for the business - so you'll actually be better off by registering.
Assuming you invoice more than you spend, HMRC get the VAT on the difference.
Of course if we left the EU we could get rid of VAT and replace it with something of our own choosing... 'VAT was originally a French idea, started in the 1950s. Britain introduced it as part of its condition of joining the European Economic Community. All countries joining the EEC had to replace their indirect taxes with the VAT.'
On the plus side YOU can reclaim VAT on everything you buy for the business - so you'll actually be better off by registering.
Assuming you invoice more than you spend, HMRC get the VAT on the difference.
Of course if we left the EU we could get rid of VAT and replace it with something of our own choosing... 'VAT was originally a French idea, started in the 1950s. Britain introduced it as part of its condition of joining the European Economic Community. All countries joining the EEC had to replace their indirect taxes with the VAT.'
Edited by Simpo Two on Thursday 31st October 19:02
Ari said:
Which brings me back to how utterly pointless it all is. Who gains?
HMRC usually gain as they finally pocket the VAT ultimately paid by the non-registered end consumer (the public).When I started as a VAT registered photographer (back in the film days)
I found it particularly pointless:
At every point along the line, VAT was charged and reclaimed by the next person/company ....
.... film sold by manufacturer to wholesaler to retailer to me.
.... cameras sold by manufacturer to wholesaler to retailer to me.
.... all that was involved with my expenses.
.... the chain of events with processing labs. etc. etc.
I would then invoice the publisher for the job plus VAT and they would reclaim that VAT.
They would then publish the books and they would be sold to the public.
BUT - as books are zero rated for VAT purposes, no VAT was charged or collected from the end user at the end of this particular chain.
An awful lot of VAT had been charged and reclaimed at many many stages, with absolutely no VAT going to the Treasury
Simpo Two said:
I was VAT registered for about 14 years. It was just two more columns in the cashbook, then do the sums each quarter and send it off. All my clients were VAT registered too so they didn't mind at all; indeed had I NOT been I'd have looked small-time. As your clients are registered too the same applies; you won't be 'more expensive' and you'll quote net of VAT anyway. Just add 'VAT is applicable at the current rate' underneath.
On the plus side YOU can reclaim VAT on everything you buy for the business - so you'll actually be better off by registering.
Assuming you invoice more than you spend, HMRC get the VAT on the difference.
Of course if we left the EU we could get rid of VAT and replace it with something of our own choosing... 'VAT was originally a French idea, started in the 1950s. Britain introduced it as part of its condition of joining the European Economic Community. All countries joining the EEC had to replace their indirect taxes with the VAT.'
That's very interesting, thank you. On the plus side YOU can reclaim VAT on everything you buy for the business - so you'll actually be better off by registering.
Assuming you invoice more than you spend, HMRC get the VAT on the difference.
Of course if we left the EU we could get rid of VAT and replace it with something of our own choosing... 'VAT was originally a French idea, started in the 1950s. Britain introduced it as part of its condition of joining the European Economic Community. All countries joining the EEC had to replace their indirect taxes with the VAT.'
Ironically, about the only thing of any real value I buy for the business is air travel which is zero rated...
Elderly said:
HMRC usually gain as they finally pocket the VAT ultimately paid by the non-registered end consumer (the public).
When I started as a VAT registered photographer (back in the film days)
I found it particularly pointless:
At every point along the line, VAT was charged and reclaimed by the next person/company ....
.... film sold by manufacturer to wholesaler to retailer to me.
.... cameras sold by manufacturer to wholesaler to retailer to me.
.... all that was involved with my expenses.
.... the chain of events with processing labs. etc. etc.
I would then invoice the publisher for the job plus VAT and they would reclaim that VAT.
They would then publish the books and they would be sold to the public.
BUT - as books are zero rated for VAT purposes, no VAT was charged or collected from the end user at the end of this particular chain.
An awful lot of VAT had been charged and reclaimed at many many stages, with absolutely no VAT going to the Treasury
Remarkable! When I started as a VAT registered photographer (back in the film days)
I found it particularly pointless:
At every point along the line, VAT was charged and reclaimed by the next person/company ....
.... film sold by manufacturer to wholesaler to retailer to me.
.... cameras sold by manufacturer to wholesaler to retailer to me.
.... all that was involved with my expenses.
.... the chain of events with processing labs. etc. etc.
I would then invoice the publisher for the job plus VAT and they would reclaim that VAT.
They would then publish the books and they would be sold to the public.
BUT - as books are zero rated for VAT purposes, no VAT was charged or collected from the end user at the end of this particular chain.
An awful lot of VAT had been charged and reclaimed at many many stages, with absolutely no VAT going to the Treasury
CAPP0 said:
Do you sell mainly goods, or services? If it's services then register under the Fixed Rate scheme - you charge the customer the usual 20%, then you pay HMRC a smaller amount (it's different from year 1 then in subsequent years, check the current terms but it's around 13-14%) and you pocket the difference.
Difference is that you can't claim VAT back on anything you purchase "for the company" which is why it works better if you're primarily selling services and don't need to buy much in the way of goods & equipment.
Flat rate scheme isn't great for last few years so I dropped out of it and pay actual amount now. Bit more admin scanning receipts etc but I pay less VAT as a result.Difference is that you can't claim VAT back on anything you purchase "for the company" which is why it works better if you're primarily selling services and don't need to buy much in the way of goods & equipment.
To the OP, get an accountant.
TX.
Ari said:
Ironically, about the only thing of any real value I buy for the business is air travel which is zero rated...
Well yes if your work is mostly fee-based there's not so much to reclaim - but I presume you have a computer and a mobile, and stationery, and use a car for business (for which you buy fuel, tyres, servicing etc all of which have VAT on...)With your clients VAT registered there's nothing to worry about and you'll soon get used to the slight extra recording burden. Certainly don't let it reduce your business.
CAPP0 said:
Do you sell mainly goods, or services? If it's services then register under the Fixed Rate scheme - you charge the customer the usual 20%, then you pay HMRC a smaller amount (it's different from year 1 then in subsequent years, check the current terms but it's around 13-14%) and you pocket the difference.
Difference is that you can't claim VAT back on anything you purchase "for the company" which is why it works better if you're primarily selling services and don't need to buy much in the way of goods & equipment.
Two points:Difference is that you can't claim VAT back on anything you purchase "for the company" which is why it works better if you're primarily selling services and don't need to buy much in the way of goods & equipment.
1) You might only qualify as a 'limited cost business' paying 16.5%
2) Regardless of Flat rate vat rate (13%, 16.5%, whatever) this is applied to the *total amount including VAT* for the period. You do *not* pocket 20% minus your flat rate vat rate.
Olivera said:
CAPP0 said:
Do you sell mainly goods, or services? If it's services then register under the Fixed Rate scheme - you charge the customer the usual 20%, then you pay HMRC a smaller amount (it's different from year 1 then in subsequent years, check the current terms but it's around 13-14%) and you pocket the difference.
Difference is that you can't claim VAT back on anything you purchase "for the company" which is why it works better if you're primarily selling services and don't need to buy much in the way of goods & equipment.
Two points:Difference is that you can't claim VAT back on anything you purchase "for the company" which is why it works better if you're primarily selling services and don't need to buy much in the way of goods & equipment.
1) You might only qualify as a 'limited cost business' paying 16.5%
2) Regardless of Flat rate vat rate (13%, 16.5%, whatever) this is applied to the *total amount including VAT* for the period. You do *not* pocket 20% minus your flat rate vat rate.
There's a lot of poor or incorrect advice in this thread, you would be much better off talking to your accountant about the Flat Rate Scheme than taking the advice on this thread.
You don't want to put yourself on the wrong rate because someone on here says you should be on one percentage when they don't know what your business is. And you should understand when the FRS is and isn't the best option for you, you'll get far better advice on the nuances from your accountant as they'll understand your business.
VAT is a tax on Value Added, so you don't pay the Government 20% of your sales, you pay them 20% of the value you've created, which may end up being 20% or 0% if you're not doing very well. The system of reclaims up the chain to the retail customer means the tax is collected at each stage value is added, which seems daft if you're selling services to a VAT registered business, but makes sense if you're buying steel, making widgets and those widgets go on to be used in a hundred products across 10 businesses where the end retailer would have no chance of working out the value created in the supply chain and the tax due.
In terms of the burden on you, if you move away from Excel and use a proper accounting package, you'll likely save yourself work. Get your accountant to help set it up and so long as you get the liability of your sales and purchases correct the good ones will sort and file the returns for you. They will also tell you how much money you've made ignoring the VAT so you are less likely to take the Tax out of your account and spend it on a new car.
You don't want to put yourself on the wrong rate because someone on here says you should be on one percentage when they don't know what your business is. And you should understand when the FRS is and isn't the best option for you, you'll get far better advice on the nuances from your accountant as they'll understand your business.
VAT is a tax on Value Added, so you don't pay the Government 20% of your sales, you pay them 20% of the value you've created, which may end up being 20% or 0% if you're not doing very well. The system of reclaims up the chain to the retail customer means the tax is collected at each stage value is added, which seems daft if you're selling services to a VAT registered business, but makes sense if you're buying steel, making widgets and those widgets go on to be used in a hundred products across 10 businesses where the end retailer would have no chance of working out the value created in the supply chain and the tax due.
In terms of the burden on you, if you move away from Excel and use a proper accounting package, you'll likely save yourself work. Get your accountant to help set it up and so long as you get the liability of your sales and purchases correct the good ones will sort and file the returns for you. They will also tell you how much money you've made ignoring the VAT so you are less likely to take the Tax out of your account and spend it on a new car.
paulrockliffe said:
There's a lot of poor or incorrect advice in this thread, you would be much better off talking to your accountant about the Flat Rate Scheme than taking the advice on this thread.
You don't want to put yourself on the wrong rate because someone on here says you should be on one percentage when they don't know what your business is. And you should understand when the FRS is and isn't the best option for you, you'll get far better advice on the nuances from your accountant as they'll understand your business.
VAT is a tax on Value Added, so you don't pay the Government 20% of your sales, you pay them 20% of the value you've created, which may end up being 20% or 0% if you're not doing very well. The system of reclaims up the chain to the retail customer means the tax is collected at each stage value is added, which seems daft if you're selling services to a VAT registered business, but makes sense if you're buying steel, making widgets and those widgets go on to be used in a hundred products across 10 businesses where the end retailer would have no chance of working out the value created in the supply chain and the tax due.
In terms of the burden on you, if you move away from Excel and use a proper accounting package, you'll likely save yourself work. Get your accountant to help set it up and so long as you get the liability of your sales and purchases correct the good ones will sort and file the returns for you. They will also tell you how much money you've made ignoring the VAT so you are less likely to take the Tax out of your account and spend it on a new car.
If you'd bothered to read the thread properly you'd see the OP sells just his services & not goods or products so he'd almost certainly qualify as a limited cost business & thus forced on to the standard 16.5% rate. As such there would be little advantange is being on the Flat Rate Scheme other than it being simple to administer. It's not rocket science for this sort of business.You don't want to put yourself on the wrong rate because someone on here says you should be on one percentage when they don't know what your business is. And you should understand when the FRS is and isn't the best option for you, you'll get far better advice on the nuances from your accountant as they'll understand your business.
VAT is a tax on Value Added, so you don't pay the Government 20% of your sales, you pay them 20% of the value you've created, which may end up being 20% or 0% if you're not doing very well. The system of reclaims up the chain to the retail customer means the tax is collected at each stage value is added, which seems daft if you're selling services to a VAT registered business, but makes sense if you're buying steel, making widgets and those widgets go on to be used in a hundred products across 10 businesses where the end retailer would have no chance of working out the value created in the supply chain and the tax due.
In terms of the burden on you, if you move away from Excel and use a proper accounting package, you'll likely save yourself work. Get your accountant to help set it up and so long as you get the liability of your sales and purchases correct the good ones will sort and file the returns for you. They will also tell you how much money you've made ignoring the VAT so you are less likely to take the Tax out of your account and spend it on a new car.
Mr Pointy said:
almost certainly
Exactly. Maybe I did read the thread. The OP doesn't need very high costs to go over the 2% limit for limited costs, it's perfectly possible to supply services and not qualify as a limit costs business. Sometimes getting it wrong will be mean paying more, sometimes less. Sometimes you'll get it wrong for long enough that it causes a headache when HMRC ask for the right amount.Did you spot that within the thread there are several different percentages suggested for the OP from people that know less about the business than the OP's accountant?
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