understanding VAT
Discussion
Ok can someone explain charging VAT please? Im not registered, but considering it, but it looks like it will cost me money! consider this sum (fictitous figures)
PRODUCT A from supplier : £15.00 + VAT = £17.62
sell to public £25.00, I make £7.38 profit.
VAT registered
A = £15.00 as £2.62 gets claimed back from the VATMan
sell for £21.35+VAT= £25.00 (to get same price to consumer), but need to send the VATMan £3.65
profit = £6.35 !!!
So it seems I make a pound less when registered!!
is this right? Or should I be selling it at £23.50 in order to undercut the VAT company competitors?
PRODUCT A from supplier : £15.00 + VAT = £17.62
sell to public £25.00, I make £7.38 profit.
VAT registered
A = £15.00 as £2.62 gets claimed back from the VATMan
sell for £21.35+VAT= £25.00 (to get same price to consumer), but need to send the VATMan £3.65
profit = £6.35 !!!
So it seems I make a pound less when registered!!
is this right? Or should I be selling it at £23.50 in order to undercut the VAT company competitors?
Ok can someone explain charging VAT please? Im not registered, but considering it, but it looks like it will cost me money! consider this sum (fictitous figures)
PRODUCT A from supplier : £15.00 + VAT = £17.62
sell to public £25.00, I make £7.38 profit.
VAT registered
A = £15.00 as £2.62 gets claimed back from the VATMan
sell for £21.35+VAT= £25.00 (to get same price to consumer), but need to send the VATMan £3.65
profit = £6.35 !!!
So it seems I make a pound less when registered!!
is this right? Or should I be selling it at £23.50 in order to undercut the VAT company competitors?
Currently you are not charging VAT on what you sell. So effectively you are doing a cash deal type of affair.
Once you are VAT registered you can claim back the cash on that product but also on anything you buy for your business - eg IT equipment, furniture etc.
As Alun says, currently your prices will be artificially low compared to larger businesses who charge VAT (hence some private people prefer to deal with non VAT registered companies) Should you register however you increase in prices will not matter to a VAT registered customer as they will recoup VAT charged.
Hope that makes sense, whether you register will depend on your customer base.
Nick
Hope that makes sense, whether you register will depend on your customer base.
Nick
PetrolTed said: the bottom line is that you are paying a tax on your turnover. As long as you're making money so are Customs and Excise. There are some advantages to being VAT registed but ultimately it costs you money.
I see. Thanks all. I have no "furniture" or other such costs, so I think I will stay unregistered as long as poss. which leads to Q2: whats the limit? and is that profit or turnover limit?
Unless you go flat rate AND your costs are lower than the official rate.
For example, if the flat rate for your business was 12.5% and your revenues were £100,000 p.a., you would pay C&E £12,500. But you'd be charging 17.5% for your services/products and, as long as your outgoings are the same or lower than the difference between £12,500 and VAT on your sales, you gain. It's a lot easier to calculate too.
>Edited to say: I THINK that's how it works! And this is not a dirct reply because Ted's message got there first...
>> Edited by manek on Wednesday 16th April 11:03
For example, if the flat rate for your business was 12.5% and your revenues were £100,000 p.a., you would pay C&E £12,500. But you'd be charging 17.5% for your services/products and, as long as your outgoings are the same or lower than the difference between £12,500 and VAT on your sales, you gain. It's a lot easier to calculate too.
>Edited to say: I THINK that's how it works! And this is not a dirct reply because Ted's message got there first...
>> Edited by manek on Wednesday 16th April 11:03
Ok can someone explain charging VAT please?...
If your customers are not VAT registered, then try to avoid registration (turnover < £56K means you don't need to). This is probably the case if you are selling to the general public.
Otherwise, if your customers are VAT registered, the calc becomes:
PRODUCT A from supplier : £15.00 + VAT
sell to public £25.00 + VAT.
Difference in VAT goes to C&E, and you make £10 profit.
Hi All
Just to add another spin to this, i am VATY registered, claim money back for IT equipment etc.
Q1 how long do you have to keep the IT equipment before you can write it off. (is it 3 years or 5 years)
Q2 Do HMCE take a dim view of claiming VAT back on a majority of occasions, i do a lot of work (£90k to £100k) with international companies (ESA, NASA, CNES, etc.) As far at the Vat halp line said i do not charge them VAT on the Serices i provide them. As alot of the work is Confidential or secret i am unable to use the computers for any other project unless given previous authorisation. and hance i am going through £15k to £20k of IT equipment a year mainly on NAS. my overall turn over is above the threshold but i only do £8k to £10k of business in the UK and end up claiming back more VAT than i Pay.
I have already had a Tax and Vat inspection all was well and ok but i am concerned that they may make a habit of a 6monthly or yearly inspection.
Cheers
Steve
Just to add another spin to this, i am VATY registered, claim money back for IT equipment etc.
Q1 how long do you have to keep the IT equipment before you can write it off. (is it 3 years or 5 years)
Q2 Do HMCE take a dim view of claiming VAT back on a majority of occasions, i do a lot of work (£90k to £100k) with international companies (ESA, NASA, CNES, etc.) As far at the Vat halp line said i do not charge them VAT on the Serices i provide them. As alot of the work is Confidential or secret i am unable to use the computers for any other project unless given previous authorisation. and hance i am going through £15k to £20k of IT equipment a year mainly on NAS. my overall turn over is above the threshold but i only do £8k to £10k of business in the UK and end up claiming back more VAT than i Pay.
I have already had a Tax and Vat inspection all was well and ok but i am concerned that they may make a habit of a 6monthly or yearly inspection.
Cheers
Steve
I'm ready to be contradicted on this but I believe that at present it is still possible to write down Computers by 100% in the first year but this is being looked at.
As far as VAT inspections go, in my experience there is no problem with continually reclaiming if you are showing the type of work on your return and your business sector is expected to do so, I think the VAT inspectors look more closely at sudden changes in business practice when planning inspections.
HTH Nick
As far as VAT inspections go, in my experience there is no problem with continually reclaiming if you are showing the type of work on your return and your business sector is expected to do so, I think the VAT inspectors look more closely at sudden changes in business practice when planning inspections.
HTH Nick
stc_bennett said: Hi All
Just to add another spin to this, i am VATY registered, claim money back for IT equipment etc.
Q1 how long do you have to keep the IT equipment before you can write it off. (is it 3 years or 5 years)
Q2 Do HMCE take a dim view of claiming VAT back on a majority of occasions, i do a lot of work (£90k to £100k) with international companies (ESA, NASA, CNES, etc.) As far at the Vat halp line said i do not charge them VAT on the Serices i provide them. As alot of the work is Confidential or secret i am unable to use the computers for any other project unless given previous authorisation. and hance i am going through £15k to £20k of IT equipment a year mainly on NAS. my overall turn over is above the threshold but i only do £8k to £10k of business in the UK and end up claiming back more VAT than i Pay.
I have already had a Tax and Vat inspection all was well and ok but i am concerned that they may make a habit of a 6monthly or yearly inspection.
Cheers
Steve
Steve
This is not a problem, I ran a company for several years that did all its business with South America, so all the work was Zero rated, the only point where you need to be careful is the location in which the work is done, they did try to get us in the cases where the work was undertaken in the UK. If you buy stuff for the business and are VAT registered you can claim back the VAT.
For tax it is still possible to write down 100% in the first year.
Your sums are correct - but miss one important point that is mentioned above - if you are selling to a VAT registered business, then you would change your price to £25 + VAT (which makes no difference to them as they just claim the VAT back on their purchase) - and hence your profit margin actually increases as you are able to claim back the VAT on the input goods.
Of course, if you are dealing with non VAT registered boides then you will be worse off, beacuse what you have effectivly been doing so far is undercharging for your goods at £25 "all in".
J
Of course, if you are dealing with non VAT registered boides then you will be worse off, beacuse what you have effectivly been doing so far is undercharging for your goods at £25 "all in".
J
I believe that the 100% write-down has very recently ended.
A recent bulletin from my account said:
With regard to flat rate, I think it would leave my IT Contracting company approximately £18 better off if I was to adopt it and my company's turnover is way below the £100k turnover threshold so I'm not bothering.
>> Edited by JonRB on Tuesday 22 April 20:14
A recent bulletin from my account said:
Capital Allowances on IT and Telecoms equipment
The 100% Capital Allowance regime ends on 31 March 2003. Prior to that date you can write 100%
of ICT (information and communications technology) investments off against tax immediately; after
that date relief is given at 40% in the first year, and thereafter 25% a year until written off. So, you
achieve the same tax relief but over a longer period.
EG for an investment of £1,000 and assuming a 19% Corporation Tax rate, on a pre 31 March
investment you would get relief of £190 in year one and nothing thereafter. For a investment after 1
January you would get £76 in year one, £29 in year two, £22 in year three, etc.
So is it worthwhile? If you need to make ICT investment in the next month or so then it may be worth
bringing it forward to pre 31 March – if you don’t need to spend just yet then you are probably as well
off waiting.
With regard to flat rate, I think it would leave my IT Contracting company approximately £18 better off if I was to adopt it and my company's turnover is way below the £100k turnover threshold so I'm not bothering.
>> Edited by JonRB on Tuesday 22 April 20:14
Anyone know the rules on what sort of equipment is classed as expenses vs. fixed assets??
Certainly my business means some IT / comms gear will be useless within the year and I'd usually account for it as expenses. This tax-wise comes off bottom line, I'd rather not account for crap that is discarded after a year for 3 years on a linear write-down.
Certainly my business means some IT / comms gear will be useless within the year and I'd usually account for it as expenses. This tax-wise comes off bottom line, I'd rather not account for crap that is discarded after a year for 3 years on a linear write-down.
stc_bennett said: Q1 how long do you have to keep the IT equipment before you can write it off. (is it 3 years or 5 years)
Aprisa said: I'm ready to be contradicted on this but I believe that at present it is still possible to write down Computers by 100% in the first year but this is being looked at.
The 100% write down for IT equipment was re-instated in the budget, for an additional year I believe. The turnover figures that define a small-medium sized business (requirement for the relief) were increased also, potentially bringing more companies into the relief band.
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