Do I have to pay VAT even if I made a loss??

gr8stuff

JasonLVC wrote: »

What kind of stuff do you sell in your foodshop?.

Most raw foodstuffs are zero rated and so creates no VAT liability. If you sell things like Coka and crisps then these will be subject to VAT at 15%.

A retail scheme, previously alluded to here, is where you take a sample of purchases over a given week/fortnight and you analyse how much stock you sell is zero rated and how is standard rated (15%), you then apply that ratio to your turnover on a quarterly basis to calculate your VAT liability.

Can you explain how you have managed nopt to submit a VAT return for over two years without the VATman contacting you?. I assume you've only recently got the accountant in volved so the question is, who registered you for VAT and when.

I'm guessing you've never registered for VAT and you've gone over the threshold at some point in 2008 and the accountants have calculated your liability from that point onwards. You need to confirm to me if this is the case.

This is serious, not submitting a VAT return for two years (or registering for VAT when you passed the threshold) is subject to penalties and interest IN ADDITION to whatever liability you have calculated based on your turnover and with the new penalty regime now including 'ignorance' as a means to justify a higher penalty, you need to be very precise with your facts on this one or it could be DOUBLE the £19k you think you owe.

VAT is nothing to do with profit or loss, only to do with turnover. If you haven't registered for VAT when you should have, it means you didn;t charge VAT to your customers, so instead of them paying the VAT over to you to then pay over to HMRC, you are going to be wholly liable for the VAT you never charged in the first place.

So, to recap, can you confirm the following :-

1. Are you registered for VAT?.
2. if so, who registered you for VAT?
3. What foodstuffs do you sell in your shop?
4. When were you liable to be registered for VAT?
5. Estimated turnover for each year 2007, 2008 and to date (ie, today's date).

and from that we should be able to give you some more guidance.

.

1) I've only registered for VAT about a week ago...
2) I registered myself
3)It's a Kebab shop...so basically I sell Kebabs, fried chicken etc
4) Not sure but going by the threshold of £68,000, I guess sometime at the beginning of 2008 ( I don't know whether the £68,000 is the total from the first day of trading or for each 12 months...if from the first day of trading, then my turnover exceeded £68,000 on the 25th of January 2008)
5) Turnover for 2007 is £63, 384.31; 2008 = £ 76,881.63 and estimated turnover to date is around £60,000

JasonLVC

gr8stuff wrote: »

1) I've only registered for VAT about a week ago...
2) I registered myself
3)It's a Kebab shop...so basically I sell Kebabs, fried chicken etc
4) Not sure but going by the threshold of £68,000, I guess sometime at the beginning of 2008 ( I don't know whether the £68,000 is the total from the first day of trading or for each 12 months...if from the first day of trading, then my turnover exceeded £68,000 on the 25th of January 2008)
5) Turnover for 2007 is £63, 384.31; 2008 = £ 76,881.63 and estimated turnover to date is around £60,000

The VAT threshold is based on a rolling 12 month period so you are supposed to check your tuenover each and every month and if the previous 12 months were over the VAt threhold, then you have to register for vaT - So you need to see the date you went over the limit based on this rolling 12 monhts, not a financial or a calendar year.

If you sell take-away food, then this means you buy a lot of raw food stuffs in (which are zero rated) and sell a lot of food at the standard rate (15%). Your only input tax (the VAT you can reclaim) will be on rent, cooking equipment and overheads such as electric, gas, etc.

This is important to know as you may choose to go onto the Flat Rate Scheme (FRS) which means you may ne able to mitigate your VAT liability. Under the FRS you charge your customer 15% but you only pay over a set % as laid down in the law, for catering establishments this is 10.5% and so you keep the difference. The only downside is you cannot reclaim input tax such as rent, eletric, etc so you need to tot up what you could reclaim VAT against what you have to pay over (basically 10.5% of your turnover).

The alternative is that reemmeber, if you are having to pay over VAT to HMRC, you can also reclaim VAT from HMRC - you can go back 6 monhts for services from date of VAT registration and 3 years for goods provided you still have those goods (ie, chip fryers, equipment, etc) and hold valid VAt receipts for all these purchases. You may find you owe £19k VAT to HMRC but can reclaim £19k based on your expenditure, gas bills, etc and so actually you owe nothing at all. If you go for FRS, you also get a 1% discount for 1st 12 months, thus you only pay over 9.5% of turnover, not 10.5%

You need to talk to your accountant and make sure he/she is brilliant at VAT, not all accountants (ie, many) know what they are talking about when it comes to VAT.

Also remember, you are only liable to register for VAT at the point you exceed the VAt threshold of £68,000 so taking your figures you said you had a turnover of £63k in 2007 - if we just for now assume a financial year (rather than the rolling 12 months rule as described earlier), you were below the VAT registrration threshold in 2007 (which was £64k - so only justm which is why the rolling 12 months is vital to understand).

Your turnover in 2008 is over the threshold but I'd imagine that wasn't straight away and so you need to use the 12 month rule to determine which month you went over the £67k threshold (as it was last year) and THAT is when you should have registered for VAT from and you only need to calculate VAT on your turnover from THAT date.

However, if you have registered for VAT using an earlier date, HMRC will not allow you to amend that date (why would they, more cash for them) so you should hjave checked this out before registering (but no point crying over spilt milk now).

As you can see from my post, there is a lot going on here, you need to get advice and then before acting upon it, post it here and I'll make sure it is the right advice for your situation - it is not ideal for you, you are in a high risk business sector subject to repeated VAT inspections (cash business thus supression of takings are all common in your sector) so HMRC will be visiting you sooner rather than later and so it is best to get compliant now rather than leave it until they find out or else the penalty they apply will be much higher still.

Good luck.

gr8stuff

Thanks for your reply but I'm still a bit confused about the "rolling 12 month period"...I started trading on the 19th of March 2007...does that mean if my turnover from that date to 18th March 2008 is under £64K, I don't pay VAT?? And does the turnover for this period roll over to the next period or the next period start from 19th MArch 2008 only?? I hope you understand what I'm trying to say...

Debt_Free_Chick

gr8stuff wrote: »

Thanks for your reply but I'm still a bit confused about the "rolling 12 month period"...I started trading on the 19th of March 2007...does that mean if my turnover from that date to 18th March 2008 is under £64K, I don't pay VAT?? And does the turnover for this period roll over to the next period or the next period start from 19th MArch 2008 only?? I hope you understand what I'm trying to say...

You look at your turnover, every month, for the previous 12 months. So on 31 March 2008, you look back to 1 April 2007. Then on 30 Apri 2008, you look back to 1 May 2007 etc etc. Once you hit the VAT threshold, that's the date you use for first registration.

gr8stuff

Ok, so for example let's say the first 12 months, (march 07 to Feb 08) I reached the threshold of £67K in January 08; does that mean VAT is applied on turnover from Jan 08 to Feb 08 only??...And MArch 08 will just start another 12 month period?? Am I right...???

Thanks

Debt_Free_Chick

gr8stuff wrote: »

Ok, so for example let's say the first 12 months, (march 07 to Feb 08) I reached the threshold of £67K in January 08; does that mean VAT is applied on turnover from Jan 08 to Feb 08 only??...And MArch 08 will just start another 12 month period?? Am I right...???

Thanks

It means you should have registered for VAT in january 08 and VAT would have been due on all sales since then. Once registered for VAT then you stay registered for VAT, unless it seems likely that your VATable turnover is going to fall below the VAT threshold and stay that way for the next 12 months.

It's a bit of a one way street - you can de-register, but only if your VATable turnover falls and it looks likely that it will stay below the VAT threshold for the next year.

You don't need to keep looking back over the past 12 months once you've hit the threshold. You only do this to see if you hit the threshold and once you do you register for VAT and stay VAT registered indefinitely.

HTH

gr8stuff

Thanks DFC...One more question, once registered, do I continue to pay for VAT regardless of whether I reached the threshold or not?? Are you saying that unless I can prove that I won't reach the threshold for the following year, I still have to pay??

Debt_Free_Chick

gr8stuff wrote: »

Thanks DFC...One more question, once registered, do I continue to pay for VAT regardless of whether I reached the threshold or not??

Yes - unless you have reason to be believe that your sales are going to fall below the threshold. On this point, I have no experience, but perhaps others can help.

However, you don't continuously opt "in and out" on a monthly basis.

gr8stuff

Thanks again everyone..it cleared a lot of the confusion I had ...I've made an appointment with my accountant to discuss this as I think he calculated the VAT on all turnover from day 1 and not from the time I reached the threshold of £67K...:rolleyes:

Will post here what he has to say after the appointment on Wednesday...

Does anyone know what the penalties are for registering for VAT late??

00ec25

gr8stuff wrote: »

Does anyone know what the penalties are for registering for VAT late??

The amount of the penalty will depend on the amount of VAT due (ie the output VAT minus the input VAT) and how late you were in telling us that you should have registered.
penalty notices are here it varies between 5 - 15 % of the VAT due as per the table at point 2.2