Buying VAT free?

Author
Discussion

stigcv8

Original Poster:

22,454 posts

210 months

Monday 15th January 2007
quotequote all
Currently I am a mature (allegedly) student studying photography. I have already set up a company that is currently dormant but ready and waiting for when I wish to start trading.

The issue is I am not sure as to when that will be yet will require quite a bit of equipment to get up and running.

Whilst I am still studying I would like to buy this equipment and if possible not pay the VAT. Is this possible as the equipment will be for the company even if it isn't trading right away. Also what happens to the equipment should I wish to stop trading after a few years (no debts involved in the business).

Thanks

vex

5,256 posts

246 months

Monday 15th January 2007
quotequote all
As far as I know you can not buy vat free, but you can claim VAT back from the IR once you are VAT registered for purchases up to 3 years before registration.

Eric Mc

122,042 posts

265 months

Monday 15th January 2007
quotequote all
You can claim back VAT on business expenditure incurred before the business was VAT registered. However, youi must wait for the business to be VAT registered before you can claim (obviously) and the claim must be made within three years of the purchase date. In addition, the items purchased must still be owned by the business at the time the VAT reclaim is being made.

If you sell any items on which VAT was claimed at the time of purchase or later, VAT must be declared by you at the date of the sale and the VAT paid to HM Revenue and Customs - as part of the normal VAT return procedures.

justinp1

13,330 posts

230 months

Monday 15th January 2007
quotequote all
As Eric Mc says...

The only thing I would add is that I was in a similar situation a few years ago. It will be great to get VAT registered and claim back the VAT but it does mean that the first £100 job you do with your new company £17.50 will automatically go to the taxman. And the next one. And the next one.

Thus unless you can guarantee being over the VAT threshold (about £60k) in the first active trading year then you will lose out by quite a bit.

For example if you turned over £50k, you would have to pay about £8000 in VAT. That would be a high price to pay to claim back a few hundred quid now.

Eric Mc

122,042 posts

265 months

Monday 15th January 2007
quotequote all
Or you could make sure you charge £117.50 for your first £100 job.

You do not HAVE to register for VAT until you exceed the Annual Turnover Threshold (currently £61,000. Many businesses do register before they have reached these levels, especially if they have a large outlay on capital equipment at the time the business is being set up.

Whether you want to register early is up to you. If most of your customers are themselves VAT registered, then charging them VAT is no big deal for them as they will be able to reclaim the VAT you charged.
If the bulk of your customers are "ordinary" folk, then having to charge VAT on the work you do may put you at a competitive disadvantage compared to your non-VAT registered competitors.

stigcv8

Original Poster:

22,454 posts

210 months

Monday 15th January 2007
quotequote all
cheers guys

Don't want to register if it means I have to charge on each job as that would leave me high and dry. However, failing to register means I cannot claim back equipment? I might just trade for a year with little turn over,sell the stock off cheap and pay the vat back at the lower price... or is this going to see me share a cell with Archer?

Eric Mc

122,042 posts

265 months

Monday 15th January 2007
quotequote all
What do you mean by "pay the VAT back at a lower price"?

If you remain non-VAT registered, then VAT is not really an issue.

When you buy stuff, some of it will have VAT included in the cost which you will not be able to reclaim.

When you sell stuff, you won't have to charge any VAT.

That's it - nice and simple.

stigcv8

Original Poster:

22,454 posts

210 months

Monday 15th January 2007
quotequote all
what I mean was to register for VAT and buy the equipment and reclaim the VAT

then at a later date close the business and sell the equipment to say my partner for a deducted price....

I should get an accountant!

thanks for the advice though

Basically I dont want to charge VAT to customers but I want to be able to get my equipment as cheap as possible

Eric Mc

122,042 posts

265 months

Monday 15th January 2007
quotequote all
Not allowed, I'm afraid.

Selling items at below market value in order to deliberately underdeclare and underpay VAT is fraud and is a criminal offence.

justinp1

13,330 posts

230 months

Monday 15th January 2007
quotequote all
stigcv8 said:
what I mean was to register for VAT and buy the equipment and reclaim the VAT

then at a later date close the business and sell the equipment to say my partner for a deducted price....

I should get an accountant!

thanks for the advice though

Basically I dont want to charge VAT to customers but I want to be able to get my equipment as cheap as possible


ebay.

Eric Mc

122,042 posts

265 months

Monday 15th January 2007
quotequote all
If you had claimed VAT on items which were still in your posession at the date of closure of the business, whether you sell the items or not, you must UN-reclaim the VAT on your final VAT return i.e, declare it as a Sale/Output .

It is deemed to be a "Self Supply" - at market value.

stumartin

1,706 posts

237 months

Monday 15th January 2007
quotequote all
...subject to the de minimis threshold where if the VAT would be <£1000 (i.e if the items have an omv iro £5700 (exc) ) on these items then, subject to exception and legitimacy, you wouldn't need to account for that on closure. I hear an echo from the thread about the guy leaving the country.

Eric Mc

122,042 posts

265 months

Monday 15th January 2007
quotequote all

asian_boy

174 posts

214 months

Sunday 4th February 2007
quotequote all
The term carousel fraud comes to mind reading this thread.