Voluntary VAT registering???!!

blondie4281

Very confused. I am self employed and I am not VAT registered. I earn less than £60'000pa. Someone said to me that they are vouluntary VAT registered (they are also self employed and don't earn £60k). He said that he therefore gets the VAT back on all his business related purchases, petrol etc. He hasn't had to pay a tax bill in years! Is it really that simple? Why has my accountant never mentioned it?

laurel7172

No, it's not that simple.

What on earth does he mean, he hasn't had to pay a tax bill in years?? It doesn't work that way. If anything, this would increase his income tax (because, by claiming back the VAT, he'd have less expenses to offset against his income.) And if he's charging VAT, he has to pay it over to HMCE (after deducting the VAT on his purchases). I think you've been subject to some "down the pub" style fibbing.

Voluntary VAT registration can make sense when all your customers are VAT registered, so don't mind VAT being charged on top, or if you're a zero rated supplier, but you really need to talk to your accountant about it. And you also need to ask yourself (and the accountant) whether the VAT you could claim back on stationery would pay for your accountant to fill out your VAT return on a regular basis...probably it wouldn't.

property.advert

You don't need an accountant to do simple VAT ? Cannot people here add up and subtract ?

You can also reg and de-reg say if you are buying in some capital equipment. That is fairly common.

The problem as someone said is that you will probably have customers who do not want to pay VAT and you are "obliged" to add it to the bill. Not to do so means the good old cash economy but you have to be careful because you cannot claim inward VAT on items which you use for a cash job. If you get audited, you might have some problems with that unless it is for regular supplies, like 2x4 wood lengths. If you cannot work computers and don't have a good brain, forget it.

The attraction is there. I've done it and will again. I also ran more than one company and pushed VAT stuff through one company and the other non VAT stuff through another company. Easy to do if you do all your own accounts but not if you cannot count and pay an accountant to do it.

Also, your savings will depend on how much of an input purchases are. Someone working as a secretary has no outputs for instance as she doesn't buy anything for her business and only uses her labour.

You say you earn under 60k. It is not profits but turnover that VAT is applied to - make sure you know what you are talking about.

If you had 20k of purchases which you paid VAT on then you pay out 20,000*17.5%=3,500 making your total bill 23,500.

If you then sell those products on for 40,000 you should attract a VAT of 7,500. Now if you could successfully charge 47,500 you would collect 7,500 VAT and pay out 3,500 VAT making you 3,500 better off.

However, if your customers will not pay the higher prices and you find yourself obliged to include the VAT in the 40,000 it means you only receive a net 40,000/1.175=34,043

Your position on whether to charge VAT is thus:

No VAT = 40,000-(20,000+3,500)=16,500
With VAT = (47,000 - 23,500)-(7,000-3,500)=20,000

But if you cannot pass on the VAT (40,000-23,500)-(5,957-3,500)=14,043

So you can end up worse off if you cannot balance your inward and outward VAT but you are better off if you can.

My feeling, with experience, is that if the benefit is marginal, don't do it.

John_Pierpoint

Was this a slip of the keyboard zero rated.
There are some traders that are exempt from VAT (because their turnover is too low for example).
There are other traders (such as farmers) who are zero rated and thus subsidised by the VAT system. (They charge zero% but claim back any 17.5% on their inputs (purchases))

sunshinetours

property.advert wrote: »

You don't need an accountant to do simple VAT ? Cannot people here add up and subtract ?

You can also reg and de-reg say if you are buying in some capital equipment. That is fairly common.

The problem as someone said is that you will probably have customers who do not want to pay VAT and you are "obliged" to add it to the bill. Not to do so means the good old cash economy but you have to be careful because you cannot claim inward VAT on items which you use for a cash job. If you get audited, you might have some problems with that unless it is for regular supplies, like 2x4 wood lengths. If you cannot work computers and don't have a good brain, forget it.

The attraction is there. I've done it and will again. I also ran more than one company and pushed VAT stuff through one company and the other non VAT stuff through another company. Easy to do if you do all your own accounts but not if you cannot count and pay an accountant to do it.

Also, your savings will depend on how much of an input purchases are. Someone working as a secretary has no outputs for instance as she doesn't buy anything for her business and only uses her labour.

You say you earn under 60k. It is not profits but turnover that VAT is applied to - make sure you know what you are talking about.

If you had 20k of purchases which you paid VAT on then you pay out 20,000*17.5%=3,500 making your total bill 23,500.

If you then sell those products on for 40,000 you should attract a VAT of 7,500. Now if you could successfully charge 47,500 you would collect 7,500 VAT and pay out 3,500 VAT making you 3,500 better off.

However, if your customers will not pay the higher prices and you find yourself obliged to include the VAT in the 40,000 it means you only receive a net 40,000/1.175=34,043

Your position on whether to charge VAT is thus:

No VAT = 40,000-(20,000+3,500)=16,500
With VAT = (47,000 - 23,500)-(7,000-3,500)=20,000

But if you cannot pass on the VAT (40,000-23,500)-(5,957-3,500)=14,043

So you can end up worse off if you cannot balance your inward and outward VAT but you are better off if you can.

My feeling, with experience, is that if the benefit is marginal, don't do it.

Yes strangely enough most will end up better off in their pockets if they evade tax and keep it in their pockets. If you get caught then you will not end up better off

Everyone has a friend who hasn't paid a tax bill in years and blah blah - not usually the case if you are trying to compare equal business set ups on legal footings though is it?

John_Pierpoint

The sad thing is that tax levels & subsidies have got to the point where you will make more money by avoiding (legal) or evading (illegal) tax, rather than doing an honest useful days work.

sunshinetours

I have no problem in arranging client affairs for legal minimisation of tax

It has always been the case that people would be better off financially by not paying or evading their tax. Saying that taxes and benefits are too high, or you don't agree with economy management etc doesn't change the legality of that treatment. Hopefully the same people are happy to take their punishment when they get caught.

Not saying you are endorsing that evasion John, just to clarify

John_Pierpoint

I would never be good at evasion - failing memory, not a good liar and don't qualify for the "nothing left to lose" tag.
(Someone told me that in Germany if you pay a tradesman in tax and he is later found to be evading tax the client as well as the tradesman are in hot water?!)

It is sad that in some trade it is difficult to make an honest living without "fiddling" in some way or another.
I have no problem in arranging client affairs for legal minimisation of tax
I trust you are well paid for your services - but how socially useful they are is debatable.:D

I hope you are able to offer them lots of advice on how to trade more efficiently rather than just how to dodge tax.

FatAndy

I worked in accountancy for many years and only remember one client who benefited from voluntary registration. He was a butcher who had all zero rated sales but claimed back VAT on electricity and gas bills, telephone, repairs, capital expenditure, advertising and so on. He also did his own VAT returns so he didn't have to pay an accountant to do it for him. We just did the annual accounts (more VAT to reclaim) and tax returns.

If you work from home and don't have sizeable premises costs to pay it probably wouldn't be worth the effort, it all depends on your business expenditure.

sunshinetours

I have had several clients who have benefitted from voluntary registration esepcially if they can take advantage of the flat rate scheme in certain sectors and mainly work for VAT registered customers

Paperwork couldn't really be easier especially on flat rate scheme. I would say we prepare VAT returns for less than 5% of our total business clients

sunshinetours

John_Pierpoint wrote: »

I would never be good at evasion - failing memory, not a good liar and don't qualify for the "nothing left to lose" tag.
(Someone told me that in Germany if you pay a tradesman in tax and he is later found to be evading tax the client as well as the tradesman are in hot water?!)

It is sad that in some trade it is difficult to make an honest living without "fiddling" in some way or another.
I have no problem in arranging client affairs for legal minimisation of tax
I trust you are well paid for your services - but how socially useful they are is debatable.:D

I hope you are able to offer them lots of advice on how to trade more efficiently rather than just how to dodge tax.

Indeed your memory is poor as I didn't mention anyone dodging tax There is a world of difference between dodging tax and , as you mention yourself, ensuring a business is structured efficiently to take advantage of any reliefs available :beer: