VAT. Is it entirely pointless for a service company?

heathcote123

Once every three months I have to do a VAT return.

It's generally pretty painless unless sage comes up with some unexpected numbers, but it's a general PITA, messes with cashflow and something I really don't like doing. No-one pays me for it.

But why am I bothering anyway?

On everything we buy, we claim the VAT back. And as we sell only to other businesses (I suspect all of whom are vat registered) they are going to claim all the vat back that we charge.

So surely our input into the VAT system ends up around 0. But we've had to fill forms in, our suppliers have had to fill forms in, and our customers have had to fill forms in. People at the tax office have checked forms. Cash has been shuffled back and forth to no noticeable aim.

Surely there must be a better way of doing this?

paddyrg

What would you suggest as an alternative?

The advantage of the system as-is is that it works, is fairly simple, reasonably rugged and is understood. You charge VAT to all your clients, some are VAT registered, some not. Any new system would have to handle both registered and non-registered clients, so would necessarily mean paperwork for handling exceptions, etc - I think you'd just swap one set of problems for another.

However, you could look at the flat rate scheme for VAT - sounds like it may suit you more

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

Thrugelmir

A cheap means of collecting tax revenue. Harder to avoid than income tax.

A._Badger

Thrugelmir wrote: »

A cheap means of collecting tax revenue. Harder to avoid than income tax.

Cheap for the gummint (no members of which are likely ever to have had to fret over it) but neither cheap nor easy for small businesses - especially sole traders.

Another 'benefit' of EU membership, of course.

ILW

A._Badger wrote: »

Cheap for the gummint (no members of which are likely ever to have had to fret over it) but neither cheap nor easy for small businesses - especially sole traders.

Another 'benefit' of EU membership, of course.

I do the VAT returns for a very small company, use Sage. It takes around half an hour every three months.

May be a problem if you do not keep your accounts up to date though.

A._Badger

ILW wrote: »

I do the VAT returns for a very small company, use Sage. It takes around half an hour every three months.

May be a problem if you do not keep your accounts up to date though.

There must be any number of small businesses who have been forced to register for VAT for whom even Sage is a PITA and VAT itself a mystery.

ILW

A._Badger wrote: »

There must be any number of small businesses who have been forced to register for VAT for whom even Sage is a PITA and VAT itself a mystery.

You only have to register if turning over £70k ish. Not going to affect your part time ebayer.

leveller2911

VAT is yet another way in which Governments deceive the population over the total amount of tax they pay.If we really knew how much we would stand for it so they hide it...

When I buy glass double glazed units I also pay an "energy surcharge"(enviromental tax) on the glass and I also pay vat on that tax so I'm paying a tax on a tax.


The problem many have with the vat threshold is the turnover threshold is based on a rolling 12 months so its a very fine line to walk if your under the threashold by a few £k.

chewmylegoff

heathcote123 wrote: »

Once every three months I have to do a VAT return.

It's generally pretty painless unless sage comes up with some unexpected numbers, but it's a general PITA, messes with cashflow and something I really don't like doing. No-one pays me for it.

But why am I bothering anyway?

On everything we buy, we claim the VAT back. And as we sell only to other businesses (I suspect all of whom are vat registered) they are going to claim all the vat back that we charge.

So surely our input into the VAT system ends up around 0. But we've had to fill forms in, our suppliers have had to fill forms in, and our customers have had to fill forms in. People at the tax office have checked forms. Cash has been shuffled back and forth to no noticeable aim.

Surely there must be a better way of doing this?

your input into the VAT system is not 0, unless you are not profitable of course, as you will no doubt see on your VAT returns.

each business in the chain pays VAT on its profits (approximately). hence the "value added" part of its name.

the alternative is like the US sales tax system where only the end point consumer pays the sales tax, but the system isn't any less of an administrative burden for a business in the supply chain as, IIRC, you have to do due diligence to check that each of your customers is not a consumer, and likewise prove that you are not a consumer every time you buy something.

A._Badger

ILW wrote: »

You only have to register if turning over £70k ish. Not going to affect your part time ebayer.

It would be if the trader had been in business some years ago when the thresholds were a lot lower. I know a fair few who were caught-up in its coils.

VAT has got somewhat easier to handle - but it is still a bureaucrat's wet dream.

Fiddlestick

A._Badger wrote: »

Another 'benefit' of EU membership, of course.

I'm not aware of the link between Value Added Tax and the UK's membership of the European Union.

Please enlighten us on how we can blame Brussels...