VAT on Management Fees - do I pay?

googler

I'm a sole trader, and I was VAT-registered in the expectation of turnover above the threshold. Now de-registered.

Comments about the 'girl in the office' are moot, since as sole trader, I employed no-one, therefore had to keep the records myself, and submit the return, etc., myself, as I say, acting as an unpaid tax collector for HMRC.....

The VAT return may take 5 mins if you or anyone else has an accounting system that automatically logs every expense out and payment in via the business, but in the absence of this it's a regular chore to manually record every transaction on a daily or weekly (even with Excel or similar, as I did, it's a chore to input the data) and finalise them at the 3 month return date. I can't imagine any but the biggest agencies have anything but a manual system for logging petrol, travel, miscellaneous expenses - how else would they be logged in a system that allows someone to press a button and reconcile them 3 mths later?

'reclaim thousands' makes it sound like a gravy train, but as I'm sure you well know, the input tax is balanced against the output tax, and if they end up equal to each other, no VAT is paid to the taxman, nor paid back to the business.

However, if the VAT received is higher than the VAT paid out, the difference is due to the taxman, so essentially the trader is acting as an unpaid tax collector.

Anyone who's lucky enough to receive a refund from the taxman, for having paid more in VAT expenses than they have received in VAT on their income isn't earning enough to make a living, in my estimation......

googler

Dragging things back to the OP, if the agent used here wasn't registered for VAT, as they were below the mandatory turnover figure, but expected next year that they WOULD be over this figure, they would be obliged to be VAT-registered.

This would lead to the transition that the OP is experiencing. Would have been much easier for all concerned if the agency had reqistered from the beginning, and started charging VAT from day 1.

martindow

googler wrote: »

I'm a sole trader, and I was VAT-registered in the expectation of turnover above the threshold. Now de-registered.

Comments about the 'girl in the office' are moot, since as sole trader, I employed no-one, therefore had to keep the records myself, and submit the return, etc., myself, as I say, acting as an unpaid tax collector for HMRC......

But you have to keep accurate records for income tax. The only difference is separating out the VAT element. I found that VAT was quite helpful as it forced me to keep accurate and up to date accounts which was no bad thing!

googler

The income and expenses for yearly figures were easy - download from digital banking into a spreadsheet, add up the outgoing figures, add up the incomings, balance the two.

VAT was a pain.

First of all, making sure I actually HAD a VAT receipt and invoice for everything, because with the best will in the world, petrol station staff don't always ask 'Do you want a VAT receipt with that?'

Tally all the receipts for the VAT element, add them up, take the VAT from all the incoming amounts, add that up too, reconcile them every THREE months rather than every year......

DVardysShadow

googler wrote: »

Yes, but they have to allow for the time and effort in (1) accounting for all the VAT ins and outs (2) making a VAT return every 3 months, and (3) including it all in the year-end accounts, and generally fulfilling the role of an unpaid tax collector.

I don't see where there's savings to be made that can be passed on to the client here....

Oh, there is a definite overhead to managing VAT. But the savings come from the fact that as a non VAT business, they paid full VAT and charged this within their non VAT price. Now they can offset the VAT, their non VAT price should be lower, because the VAT they passed on to the client moves from the non VAT price into the VAT explicitly charged.

Yes there are more costs - administering the VAT and the VAT on their own activities, but scope also to reduce their VAT exclusive price.