VAT registration query
Discussion
Evening,
Is there any VAT experts on here that I can pick your brains quickly please regarding VAT registration and exemption.
I'm in the process of starting a new business in an area which can be classed as VAT exempt but have questions regarding whether I can register anyway in order to reclaim VAT on purchases as likely to be significant so want to run this past an expert informally before I take any steps.
Thanks
Is there any VAT experts on here that I can pick your brains quickly please regarding VAT registration and exemption.
I'm in the process of starting a new business in an area which can be classed as VAT exempt but have questions regarding whether I can register anyway in order to reclaim VAT on purchases as likely to be significant so want to run this past an expert informally before I take any steps.
Thanks
Herbs said:
Evening,
Is there any VAT experts on here that I can pick your brains quickly please regarding VAT registration and exemption.
I'm in the process of starting a new business in an area which can be classed as VAT exempt but have questions regarding whether I can register anyway in order to reclaim VAT on purchases as likely to be significant so want to run this past an expert informally before I take any steps.
Thanks
Not sure on your specific circumstance without more info, but we have exactly the opposite within our food business. Purchase non vat raw materials and convert them into products that attract VAT.Is there any VAT experts on here that I can pick your brains quickly please regarding VAT registration and exemption.
I'm in the process of starting a new business in an area which can be classed as VAT exempt but have questions regarding whether I can register anyway in order to reclaim VAT on purchases as likely to be significant so want to run this past an expert informally before I take any steps.
Thanks
Thanks all,
It is a niche area but best way to describe is that it is similar to a prize competition company so it is exempt from VAT as it includes an element of chance.
I'm trying to work out whether I can register for VAT regardless or if it is worth adding a Vat eligible product to the catalogue to allow us to register and claim back from purchases.
Ive found PistonHeads very knowledgable before so wanted to try here before engaging an accountant. This is my though process so far.
VAT Notice 701/29 states its an exempt product.
Gov. UK states: VAT registration
Businesses that sell only VAT-exempt goods and services can’t register for VAT.
If you start selling items that aren’t exempt, you can register for VAT voluntarily. You must register if the total value of non-exempt goods and services goes over the VAT taxable turnover threshold.
I'm expecting turnover for year one to be between £3m-£4m
I'm thinking if I add a Vat eligible product which will bring in approx £70k to £80k per annum then I can register for VAT and claim back vat on the purchases which will be approx £2.5m.
Can I do this or will HMRC take a dim view?
It is a niche area but best way to describe is that it is similar to a prize competition company so it is exempt from VAT as it includes an element of chance.
I'm trying to work out whether I can register for VAT regardless or if it is worth adding a Vat eligible product to the catalogue to allow us to register and claim back from purchases.
Ive found PistonHeads very knowledgable before so wanted to try here before engaging an accountant. This is my though process so far.
VAT Notice 701/29 states its an exempt product.
Gov. UK states: VAT registration
Businesses that sell only VAT-exempt goods and services can’t register for VAT.
If you start selling items that aren’t exempt, you can register for VAT voluntarily. You must register if the total value of non-exempt goods and services goes over the VAT taxable turnover threshold.
I'm expecting turnover for year one to be between £3m-£4m
I'm thinking if I add a Vat eligible product which will bring in approx £70k to £80k per annum then I can register for VAT and claim back vat on the purchases which will be approx £2.5m.
Can I do this or will HMRC take a dim view?
Edited by Herbs on Monday 16th November 11:34
There is a way in which these VAT rules can be made work in your favour.
If your business normally only sells VAT exempt goods and services, then it is barred from registering for VAT.
HOWEVER, your business can decide that it will sell some VATable goods and services. The volume of sales of these VATable items does not have to reach the compulsory VAT Registration threshold (currently £85,000 over any 12 month period).
Say your VAT Exempt sales are £1 million but your VATable sales are only £20,000 - you can still register for VAT voluntarilly - because you can. Once you are VAT registered you can reclaim Input VAT on your costs.
However, you now need to be aware of the VAT Partial Exemption rules which restrict the amount of Input VAT you can reclaim. Strictly speaking, the Input VAT reclaim should be based on the ratio of VATable sales to total sales. This would mean only limited Input VAT reclaim ability.
HOWEVER, there are de-minimis levels of Input VAT reclaim which can sometimes make VAT registration in these circumstances worthwhile. You have to do the sums to see if it will work out.
It's sometimes referred to as "The Toothbrush Trick" as dentists sell toothbrushes and other teeth cleaning products (which are standard rated for VAT) but the bulk of their sales (actual dental work) is VAT Exempt. By registering for VAT so they can declare the Output VAT on their toothbrush sales, they can then reclaim Input VAT on their costs up to the de-minimus levels.
One word of warning - be absolutely sure that your main sales are genuinely VAT exempt.
Just because no VAT is charged on a sale does not mean it is automatically a VAT Exempt item. VAtT may not apply to sales under the following categories -
VAT Exempt
Zero Rated Sales
Outside the Scope
Make sure you know which category applies to what you are selling.
If your business normally only sells VAT exempt goods and services, then it is barred from registering for VAT.
HOWEVER, your business can decide that it will sell some VATable goods and services. The volume of sales of these VATable items does not have to reach the compulsory VAT Registration threshold (currently £85,000 over any 12 month period).
Say your VAT Exempt sales are £1 million but your VATable sales are only £20,000 - you can still register for VAT voluntarilly - because you can. Once you are VAT registered you can reclaim Input VAT on your costs.
However, you now need to be aware of the VAT Partial Exemption rules which restrict the amount of Input VAT you can reclaim. Strictly speaking, the Input VAT reclaim should be based on the ratio of VATable sales to total sales. This would mean only limited Input VAT reclaim ability.
HOWEVER, there are de-minimis levels of Input VAT reclaim which can sometimes make VAT registration in these circumstances worthwhile. You have to do the sums to see if it will work out.
It's sometimes referred to as "The Toothbrush Trick" as dentists sell toothbrushes and other teeth cleaning products (which are standard rated for VAT) but the bulk of their sales (actual dental work) is VAT Exempt. By registering for VAT so they can declare the Output VAT on their toothbrush sales, they can then reclaim Input VAT on their costs up to the de-minimus levels.
One word of warning - be absolutely sure that your main sales are genuinely VAT exempt.
Just because no VAT is charged on a sale does not mean it is automatically a VAT Exempt item. VAtT may not apply to sales under the following categories -
VAT Exempt
Zero Rated Sales
Outside the Scope
Make sure you know which category applies to what you are selling.
Is the element of chance big enough to cross the ‘lottery’ threshold?
Worth a check if you haven’t already
https://www.gamblingcommission.gov.uk/for-the-publ...
Worth a check if you haven’t already
https://www.gamblingcommission.gov.uk/for-the-publ...
JPJPJP said:
Is the element of chance big enough to cross the ‘lottery’ threshold?
Worth a check if you haven’t already
https://www.gamblingcommission.gov.uk/for-the-publ...
Thanks for flagging, yes we have a solution in place to ensure we don't become an illegal lottery. Worth a check if you haven’t already
https://www.gamblingcommission.gov.uk/for-the-publ...
PF62 said:
Of course, but that isn't going to help Herbs, or anyone else who has a significant amount of exempt input tax and a far lower amount of taxable input tax as they will fall foul of the 50% de-minimis rule.
There are still some businesses who can make use of the rules, but the days of businesses like dentists taking advantage of it are long gone.
Are farmer's exempt from this? I've not come across one that isn't VAT registered but it's rare anything they produce is VATable.There are still some businesses who can make use of the rules, but the days of businesses like dentists taking advantage of it are long gone.
I run a taxi, minibus and coach company.
We are registered for VAT. We charge VAT at 20% on vehicles which carry up to 8 passengers and vehicles that carry more than 8 passengers we charge VAT at 0%.
All input VAT is reclaimed in the usual. This may give a better demonstration of the difference between being exempt from VAT registration and charging VAT at 0%.
Also worth remembering that the current VAT threshold of £85k is applicable in any rolling 12 month period.
We are registered for VAT. We charge VAT at 20% on vehicles which carry up to 8 passengers and vehicles that carry more than 8 passengers we charge VAT at 0%.
All input VAT is reclaimed in the usual. This may give a better demonstration of the difference between being exempt from VAT registration and charging VAT at 0%.
Also worth remembering that the current VAT threshold of £85k is applicable in any rolling 12 month period.
PF62 said:
Doesn’t the vehicle require 10 or more seats (including the driver) before it can be zero rated?
www.gov.uk/guidance/the-vat-treatment-of-passenger...
Yes you are correct, my mistake. We have 8 seaters the rest are 16 seats or larger. I just know to zero rate if it's not an 8 seater invoice.www.gov.uk/guidance/the-vat-treatment-of-passenger...
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