VAT Refund

mcmillanuk

Hi everyone,

I've just been looking through my girlfriend's accounts for her shop and came across something I'm not entirely sure is correct.

Basically she took some advice from a friend who works in an accouts office and registered for VAT when she started (in 2007). Ever since then she has calculated & paid her VAT every quarter with no problems at all - however upon looking at her accounts, she is under the VAT threshold (I know it fluctuates each year, but she's a country mile under it). I can only assume she has registered for VAT (which is obviously fine for any turnover) and from that felt obliged to pay it also.

Am I missing something very obvious or should she not be paying VAT? She's paid her NI and Self Assessments. If she shouldn't be paying it, is there anyway to ask HMRC for a refund on the payments she has made?

Any help would be greatly appeciated as it's something I can't find on the HMRC website (unsurprising, however I'm sure it'll be there!) and I'm not particularly savvy when it comes to this.

Thanks in advance,

Neil

jexygirl

If she is charging it, (and reclaiming it) then she should be paying it - as in I assume she is pricing according to paying 20% VAT and including that in selling price - in which case, she is, like us all, an unpaid tax collector for the government!
If she is claiming it back on buisness purchases, and charging it to customers, then its not so much about being "obliged" to pay it - more about the fact she is buying items, claiming VAT back on those items, selling an item plus VAT (and profit on it), therefore needs to pay that VAT to the government.
You cannot claim VAT back on items, if you are not registered - hence the "friend" probably said,"oo register and get your VAT back" which wasn't perhaps the best plan given turnover, as yes, claim it back, but hike prices to cover selling the item and pay one way or the other...
There are few circumstances where it is advantageous (sp) to be registered if you are under the threshhold, but there are exceptions.
I have an accountant to do all this so will leave it to someone who knows to leave a more intelligent reply! sorry!
Jex

paddyrg

Some types of business make a lot of sense to be VAT registered, some less so. If she is mostly selling retail, and spends very little on stock and bills (eg homemade dresses at a massive labour cost mark up) then there is no benefit to registration as she is losing 1/6 of each pound earned but not making that back on reclaiming much VAT on supplies.

If she sells mostly to companies and businesses, being VAT registered makes much sense - they are almost universally VAT registered, so expect all invoices to be +VAT anyway, they do not suffer the VAT (they pass it along in essence), so it wouldn't make her seem any more expensive, but the supplies (eg if she sells chocolate bars at a small markup) VAT recovery might be the bulk of her margin.

Or maybe she's a grocer/selling some other non-VAT lines/goods like kids shoes, in which case she recovers VAT on supplies (although these will only really be on the heating/light/phone/other costs of business) as she does not have to add VAT selling to the consumer retail.

What's her business?

mcmillanuk

Thanks for that - I'll need to have another look at her purchases & sales in the morning as I know she buys a lot from other EU countries (Denmark being the main one) and she puts their recommended mark up on it - if nothing else, she'll have paid the correct amount (or possibly a little bit more) so it'll be a case of continuing as she had.

mcmillanuk

paddyrg wrote: »

What's her business?

Thanks Paddy, she's a clothes retailer (sorry, really should have mentioned that initially!)

paddyrg

Adult clothes retail with EU suppliers - well VAT registration means she is not liable for VAT from any EU supplier, so if their VAT rate is higher (there are some) it may affect margins. I guess you can run the numbers for if she was paying VAT but not charging it (ie she was 'suffering' the VAT) and see which leaves more money over at the end of the quarter.

mcmillanuk

That's great, as you said, I'll need to have a few hours at it just to make sure.

If nothing else, it'll be (slighty more) enjoyable than washing windows & changing lightbulbs for her!

paddyrg

There are not many jobs in life that make doing VAT calculations seem fun by comparison, but once you have it all spreadsheeted you can run the VAt and non-VATted figures quite easily by using the gross figures for both supplies and invoices. Remember things like rent and wages are not VATted, nor public transport, taxis, etc., which favours the non-registration route all else being equal.

martindow

There is also the option of deregistering

http://www.hmrc.gov.uk/vat/managing/change/cancel.htm

Although this seems complicated it might make sense if there is no likelihood of the business turnover increasing to the threshold.

Acc72

Generally speaking, if a small business (under the vat threshold) sells its goods or services to private individuals (as opposed to a vat registered company) then it is usually preferable not to voluntarily register - assuming that your girlfriend sells the products for a higher price than what she purchases them for !

If the business sells to vat registered companies, then it would most likely be advantageous to register voluntarily.


Hopefully the following may be useful :

Importing goods from Denmark

A UK business importing goods from Denmark should give the Danish supplier its UK VAT registration number so that Danish MOMS does not get charged.

If MOMS is charged, the UK business cannot reclaim it on their UK VAT return or by a direct claim to the Danish tax authorities.

When a UK VAT-registered business imports goods from Denmark from a Danish MOMS-registered business, the UK business should pay UK VAT on the import by including VAT in box 2 of its regular UK VAT return, at the appropriate UK VAT rate.

It may then reclaim that same amount by including it as input VAT in box 4 of the same VAT return, subject to the normal rules about recovering input VAT.

The reason for this apparently circular exercise is to avoid VAT distortions between buying goods in the UK and importing them from Denmark.

orangeslimes

mcmillanuk wrote: »

Hi everyone,


Am I missing something very obvious or should she not be paying VAT? She's paid her NI and Self Assessments. If she shouldn't be paying it, is there anyway to ask HMRC for a refund on the payments she has made?

If she is registered for VAT and has been calculating the payments correctly, then no she can not ask for a refund retrospectively.

But like the above people are saying she could evaluate whether there are any benefits to her being registered, and if there aren't deregister.