The benefits are being able to reclaim VAT on purchases by way of a reduction in VAT paid over or a refund from HMRC if insufficient turnover in a period to set the refund against.
The disadvantage is that you become 20% more expensive than your competitors to non VAT registered businesses.
Note that being below the primary threshold is not sufficient. There is a secondary threshold that you need to consider before you would be allowed to withdraw.
For this year the figures are :
> £77k you have to be in
kind regards,
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.
Obviously,as your husband is trading below the VAT Deregistration Limit (currently £75k) he could de-register by filling and submitting the Form VAT7 to HMRC.
Whether your husband should de-register depends on a number of questions:-
a. Are most of your husband's customers VAT Registered themselves? If the answer is No then it would be beneficial for your husband to de-register because he can reduce his sales prices and increase turnover; b. Is your husband using the flat rate scheme? If he is not, then by using the scheme not only would he cut down the admin of preparingthe Return plus there is the distinct possibility of lower liabilities; c. What does your husband actually do? Do he purchase a lot of VATable supplies for his business? If you husband was to de-register he would not be able to recover the Input VAT on his purchases.
Shaun- I didnt realise there was a secondary threshold have to look into it, to see what it is.
Truemanbrown- Thank you for your reply. Let me answer your questions
A) most customers are not vat registered- general public B)No we do not use the flat rate scheme, we do it quarterly- we do this ourselves so there are no admin fees C)My husband is a locksmith. the largest vatable charge will be with advertising in the yellow pages. other than that our monthly vat supplies are around £400.00
I understand the recovering vat from purchase and deducting it from sales. But I never really feel like we benefit from it.
Say we purchase stock £500 + vat £100 sell it for £700 + vat £140
for some reason it missed the second line that had a less than sign in front of it. (the line in my post makes little sense as it is as it just states the obvious one and the second line doesn't appear even though it was obvious that it was supposed to be a list)
The secondary threshold as also noted in Truemans post is £75k.
On your line to Trueman you've got it wrong only in so far as the £140 was never ever part of your profit. All that you are doing is collecting taxes on behalf of the taxman. The money never belonged to you and was never profit.
kind regards,
Shaun.
__________________
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.
On your line to Trueman you've got it wrong only in so far as the £140 was never ever part of your profit. All that you are doing is collecting taxes on behalf of the taxman. The money never belonged to you and was never profit.
Doh off course!! having a blonde moment then.
I think it's difficult to seperate the money for the taxman even though it doesnt belong to us. I have this concept that we're losing out or not gaining anything from it.
I think that you need to check what your VAT Turnover is. If you are just under the deregistration threshold, I would be tempted to tell you to continue to be registered.
The flat rate scheme is another way of calculating your VAT liability.
If the business uses the flat rate scheme then it must charge its customers VAT using the normal rate of supply on all taxable goods and services as well as issuing VAT invoices to all of its customers. However, when you calculate your VAT liability you apply a flat rate percentage (which depends on the industry class you in) to the gross VATable sales figure. You can also deduct Input for capital purchases of £2,000 or more.
Try and re-create your previous VAT liabilities using the flat rate scheme. See if there any major differences/
