Anyone up on V.A.T.??

monkeyintrouble

Hi, Im considering starting my own business with some small capital I have managed to get. This would involve purchasing a commercial vehicle, where vat is added to the buying price. I am not vat registered but considering doing so once Im up and running, if only to claim back duty on fuel etc. If I buy a vehicle, say for £10k, which will attract £2k vat, will I be able to claim back the full £2k once Im registered, and what time scale would I be looking at in getting it back? Would it be refunded to me in a lump sum or credited in vat that I would be charging potential customers? If I cant get it back in a lump sum, then my plans of buying the vehicle with the prospect of losing the £2k is too much to achieve. Any help would be much appreciated

MoneySavingUser

according to: http://www.hmrc.gov.uk/vat/managing/reclaiming/motoring.htm

http://www.hmrc.gov.uk/vat/sectors/motors/what-is-car.htm#3

But you have to use the normal vat rules

So what happens is that at the end of a period (usually quarterly) you submit a tax return and a calculation is done of Output tax (VAT on sales) minus Input tax (VAT on purchases) = amount of VAT you need to pay to the govt.

So the problem is the VAT on the vehicle is offset against VAT on your sales - so it just reduces your VAT bill and you'd have to charge your customers £2000 worth of VAT first. It probably won't be worth being VAT registered before you hit the VAT turnover limit (£71000) as you'd need to be charging your clients an extra 20% VAT on sales.

*There is another option if you are selling zero-rated items - then output tax will be 0 and you'd get all the input tax back - some things are shown here that are zero-rated: http://www.hmrc.gov.uk/vat/forms-rates/rates/goods-services.htm

So I am afraid it is unlikely your plan is going to work...

*this is not professional advice - get professional advice from an accountant etc. if you are setting up a business

Notmyrealname

If you are thinking of mainly supplying services or goods to businesses and you have few outgoings, I strongly suggest signing up to the flat rate VAT scheme and that way you can make money out of VAT. Whilst you can't reclaim VAT on purchases in this scheme, you charge at 20% but only have to pay between 4 and 14.5% to the VAT man, pocketing the rest.

More here:

http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm

Yes it is legal and the usual morons who bang on about tax avoidance need not bother contributing to this thread.

bluesnake

Not sure if it still is the case, but for many is is better not to register for vat, until it is a necessity - as in making over the threshold limit. Often vat is too much work for too little income.

Once you cross the vat threshold, then I would do as Notmyrealname suggests.

Not sure how it works these days, but some time ago it was more effective to lease a vehicle, than buy.

Depending on what you do, and your projections, it may be worth while seeking advice before you start your business as it may determine how things are purchased, liability and what happens should things go wrong.

Dal_Whinnie

If you register for VAT then you will be able to offset the VAT on the van against the VAT you have charged your customers. How quickly this will be will depend on your VAT accounting periods which are normally quarterly. If you make use of the flat rate scheme you will still be able to reclaim the full amount of VAT on the van but not on other inputs. The benefit of the flat rate scheme is that HMRC have worked out an estimate of VAT recoverable for different classes of businesses and applied a fixed rate. This avoids the necessity for you to maintain full VAT records although you will still need to maintain full records for income tax or corporation tax purposes. You could time the purchase of your van to coincide with the end of a VAT period so that you would then effectively recover the VAT within a month.

before deciding whether to register though, you should look at whether you need to. If you don't, then you need to consider the type of customer you will be serving. If it is private individuals then it might be better not to register so that you don't have to charge VAT. Your rates will have to take account of the fact that you can't reclaim VAT on your costs (including the van). If you are supplying businesses then get on and register so that you can recover your VAT since your customers would rather you openly charged them VAT than built it into your charges.

MoneySavingUser

Flat rate scheme can be a good idea but depends on your customers as Dal Whinnie has mentioned - because if they are individuals and can't reclaim VAT you might make some profit out of it but you'll also be charging them 20% more than someone else who isn't VAT registered which could put them off

Dal_Whinnie

The Flat Rate Scheme has been mentioned a few times in this thread, one thing that is worth mentioning is that, having determined the correct rate to apply to your business, you have to apply this to your total income, including VAT. Thus if you charge your customers £1,000 +VAT of £200, you apply your flat rate percentage (say 13%) to £1,200 not £1,000. The only things you exclude from your income are items which do not relate to your business and capital items (such as the van as discussed above) where you have reclaimed the VAT on the purchase.

Finally, don't forget that you can reduce your flat rate by 1% during the first year of your registration.