Im working as solo trader and Im not sure about the VAT. Should I register or no as Im paying every day materials so I can work. So what are the pluses of the VAT if there is? At the moment I want only to claim the VAT.
Thanks
Andy
-- Edited by nasko82 on Friday 11th of March 2011 12:16:20 AM
it doesn't work that way I'm afraid. Registering for VAT means that you must collect VAT on behalf of HMRC on all of your VATable supplies and services. If you don't charge it then it is deemed that your charges are inclusive of VAT and the VAT man still wants his 20% of everything.
This leads to the negative side of VAT in that your services to non VAT registered businesses are 20% more expensive than supplies from non VAT registered businesses. Either that or you make 20% less profit than someone who is not VAT registered.
The good side of this i,s as you have mentioned, that the VAT that you would need to pay on items purchased wholly and exclusively for use in the business can be deducted from payments made to HMRC. (VAT receipts are needed for everything claimed. Everything claimed must be legitimately for the use of the business).
If your turnover of VAT taxable goods and services supplied within the UK for the previous 12 months is more than the current registration threshold of £70,000, or you expect it to go over that figure in the next 30 days, then there is no option but to register for VAT.
For further information in relation as to whether you should register for VAT I would strongly recommend that you speak with your accountant who will know the details of your specific case. For additional information refer to the HMRC website. The following page is an excellent starting point for you :
P.S. sorry, wrote the reply too late at night and forgot to write in the reply that the answer assumes that your companies goods and services are chargeable at normal rate and are not zero rated, reduced rate or exempt.
The overriding advice though is that you need to speak with your accountant who will know your business where we can only give generic answers.
-- Edited by Shamus on Friday 11th of March 2011 08:58:09 AM
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Agree with Shaun, your question is not specific enough to give a full answer. For instance, you may be better off using the Flat Rate Scheme. See an accountant, paying for advice will be worth it in the long run.
EDIT: Shaun, I really admire the fullness of your answers, wish I had the time!
-- Edited by gbm on Friday 11th of March 2011 09:03:46 AM
Hi Shamus, I understand that I have to collect the VAT from everybody. Can I claim the VAT that I'm paying for the goods I'm buying? For example: I'm a glazier and I have to buy this week glass and mirrors for £600 as well as small machinery for another £550. So I'm paying the VAT on those goods and I don't see it. For me it sounds like I'm losing this 20%. But as you said the best option will be to contact an accouter. Many thanks for your replays Andy
Once you have registered for VAT and have a VAT number then you will show VAT seperately on your invoices. The VAT collected does not belong to you, it belongs to the government and should be thought of quite seperately to the rest of the sale.
The goods used in providing your service will show on their invoices the amount of VAT that was charged on your purchase. This amount is deducted from the amount that you then pass back to HMRC.
Lets take an example. In fact, we'll use the figures that you quote and estimate based on a 70% markup.
You have purchased goods to the value of £1150 which if that figure includes VAT the division is £191.67 VAT and goods to the value of £958.33.
Assuming approximately 70% you install the goods for £1630 but then add 20% for VAT so you charge the client £1956 inclusive of £326.00 VAT.
You then owe HMRC £134.33 (£326.00 - £191.67) but HMRC still get £326. £134.33 from you and £191.67 from the company that you bought the materials from.
However, as mentioned in my previous message, if other companies are installing the same product for less because they are below the VAT registration threshhold then you have a problem in that to be competative you charge £1630 inclusive of VAT which means that the VAT payable by you is £271.67 from the £1630 (of which £191.67 is deductible from your payment).
Just do the figures again. They pay £1150 for the goods and charge £1630 making a profit of £480.
You pay £958.33 (1150 - 191.67) and receive £1358.33 (1630 - 271.67) making a profit of £400.
VAT will work better for you if you either (a) deal with VAT registered clients or (b) everyone else in your sector must also be registered for VAT so cannot undercut you because they are below the threshold.
Make sure that you keep valid VAT invoices for everything that you claim as you will at some stage be visited by HMRC who will go through your paperwork with a fine tooth comb. Also if you don't register but you should they'll be down on you like a ton of bricks.
Hope that this quite simple example helps. Fingers crossed after reading this you will appreciate that you really need to involve your accountant in this.
All the best,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I think that it's the business analyst in me. Give me a simple question and I'll give you a 40 page feasibility study! (and normally a quote for the work that would make your eye's water)
However,I'm not off playing with the banks again until mid April so like to keep my hand in on here.
Talking of which, I've got to pop down the bank now.
Talk later and all the best,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
