VAT. Is it entirely pointless for a service company?

chewmylegoff

A._Badger wrote: »

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.

VAT threshold was £50,000 or so in 2000, eBay hasn't been around very much longer than that.

chewmylegoff

ILW wrote: »

I think a small sliding scale fee paid to the payer would be a good idea though. Eg you need to pay HMRC £10,000 you are allowed to deduct say £200 for doing HMRCs work for them.

Great idea. Given that HMRC don't actually actively collect any taxes, we should apply this principle across the board. Obvious all taxes will have to increase by exactly the same amount to offset the loss of revenue.

A._Badger

chewmylegoff wrote: »

VAT threshold was £50,000 or so in 2000, eBay hasn't been around very much longer than that.

Amazingly, there was a time before eBay (the example wasn't mine). All sorts of businesses too, many caught in the net of VAT which (as was pointed out earlier) is based on turnover, not profit.

Someone I knew back in the '80s (a small time agent) had to register on a pathetic income because what counted wasn't his miserable profit but the turnover on which his fees were based.

RenovationMan

paddyrg wrote: »

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

I did this when I was a freelancer, well once I had bought my laptop, phone, etc. VAT was 17.5% and the flat rate was something like 14%, so when I was on a good rate it pretty much amounted for an extra days worth of billing per month. I didn't deal in equipment, just knowledge so it worked out fine for me, plus I had to pay VAT every 3 months so the tax money sat in my business bank account (along with my Corporation Tax) accruing interest.

A nice little earner. Oh and if you buy a 'one off item' that is over a certain amount (£2k or something) you can still claim the VAT back. We had a fully fitted home office installed via the company and claimed back the VAT. It was a nice selling point for our previous house.

JasonLVC

A._Badger wrote: »

Amazingly, there was a time before eBay (the example wasn't mine). All sorts of businesses too, many caught in the net of VAT which (as was pointed out earlier) is based on turnover, not profit.

Someone I knew back in the '80s (a small time agent) had to register on a pathetic income because what counted wasn't his miserable profit but the turnover on which his fees were based.

The problem traders have in the UK is a VAT regime which has a high registration threshold, currently £77k. Across the EU it is about £10k which means almost all traders are VAT registered so less moaning, unlike in UK where we moan about having to register when hitting the high threshold we have.

If UK has lower limit, everyone would be in same boat, level playing field and hopefully less moaning :D

chewmylegoff

A._Badger wrote: »

Amazingly, there was a time before eBay (the example wasn't mine). All sorts of businesses too, many caught in the net of VAT which (as was pointed out earlier) is based on turnover, not profit.

Someone I knew back in the '80s (a small time agent) had to register on a pathetic income because what counted wasn't his miserable profit but the turnover on which his fees were based.

I know, but the example was eBay.

If a business falls below the current registration threshold now then it can deregister so the historic situation seems irrelevant to me.

A._Badger

chewmylegoff wrote: »

I know, but the example was eBay.

If a business falls below the current registration threshold now then it can deregister so the historic situation seems irrelevant to me.

Yes, it's possible to deregister but the point about needless complexity holds good. Even if people can deregister now, they couldn't when they were sucked-in.

Defenders of VAT, in my experience, tend either to be accountants or people who work in finance departments. I've never met a sole trader who didn't consider it just another way for government to waste his time.

heathcote123

chewmylegoff wrote: »

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.
.

VAT isn't really related to profits, so I don't think thats quite right. It can be a handy marker though - I generally know a good quarter just from looking at the vat bill.

But, yes we do end up handing over a fair chunk - but this then gets entirely claimed back by the companies we are charging it to.

This is why it all feels a bit pointless. I'm not sure I have a solution, just sure someone must b able to think of a better way to do this that doesn't involve so much wasted effort!

heathcote123

paddyrg wrote: »

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

Wouldn't really work for us, as a fair chunk of the turnover is on kit & services which we need to get the vat back on. Might be handy for people that don't supply equipment tough.

heathcote123

chewmylegoff wrote: »

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.

That would work well for me. But I do see how it would be even more of a pain for other businesses.

Oh well. I shall carry on filling boxes and shuffling money around... I'm sure it keeps someone gainfully employed.