Taxation. Would it make sense to...

richbeth

lovinituk wrote: »

We've only just become VAT registered so maybe I haven't quite got my head round it!!

Lets say I sold something pre-VAT reg for £100 and say made pre-tax profit of £30. Now come VAT reg, I can't increase that sale price so still sell at £100 - the VAT I owe on that is £16.66 so my pre-tax profit is now £13.33 (assuming I can't claim any VAT back, which in reality I probably could on the purchase of the stock). So basically I have to sell two and half of those (turnover of £250) to make the same pre-tax profit. Am I wrong?

If you can't increase your sale prices then there is a region between £77000 and £x that means turnover increases but profit doesn't.

Hi,
that is correct which is why you see a lot of small b2c businesses trading at just under the vat threshold.

You can of course claim VAT back on all your vatable expenses and not just on the stock being resold, so office supplies etc.

You might find it beneficial to use the flat rate VAT scheme, your accountant will be able to advise. Basically this means you pay a predetermined % of sales to the vat man (e.g. 10%) and don't have to worry about keeping other vat records. The exact % depends upon the type of business.

Of course if you are selling to businesses they can claim the vat back so you can charge VAT on top as it makes little difference to most of them.

RB

lovinituk

JimmyTheWig wrote: »

chewmylegoff's point was that if your price used to be £100 and is now £83.33+vat then selling two and a half of these will contribute £208.33 to your turnover, not £250, as turnover doesn't include VAT.

That is why he says your turnover has gone down. Pre-VAT registration your turnover would have been £250 for this sale but post-registration it is £208.33.

But I think your point is that your turnover has increased because your business is expanding, rather than because of the VAT registration. (And the VAT registration is because of the business expanding.)
So last year you sold two units for a turnover of £200. This year you sell two and a half for a turnover of £208.33. So as far as you are concerned your turnover has gone up.


But you are absolutely right that you can claim back the VAT on the stock that you bought to use for the business. So your profits won't be as high as if you weren't charging VAT, but they will be higher than you have quoted above.

OK, I see now, makes sense. It still hurts to see sales increase nicely but profits hardly change at all!! Further taxation as you suggest in your opening post would only serve to make things harder for us even though we do everything by the book. It would almost be like punishing us for the actions of those that don't account correctly.

ILW

JimmyTheWig wrote: »

To enable those less capable to do less of it.


Not forced, no. But if I see someone struggling with a buggy on a flight of steps, or a bike or heavy bag then I will offer to help.
I don't know how things work but I would like to think that if I was too weak to carry a reasonable amount of shopping that I would be entitled to some sort of disability benefit that would enable me to afford to have my shopping delivered, etc.

Taxation is forced.

danothy

JimmyTheWig wrote: »

To enable those less capable to do less of it.

But that just flips the (as yet ungrounded) assertion. Where is the reasoning that proves that someone less capable should enjoy a reduction of burden for anything? The reasons of compassion/ethics/morality/justice are all subjective and arbitrary creations that just mask the lack of reasoning.

That's the issue here, that any asserted taxation situation is universally derived from a subjective idea. There's no grounding for ideas like "the rich 'should' pay more", because there's no non-subjective defence of the use of 'should' in those types of assertions.

I think opinions expressed on who 'should' pay what tax shouldn't include the word 'should' ...

N1AK

danothy wrote: »

but it's highly subjective (as all ethical issues are) and, at least in formal logic, doesn't follow that it 'should' be that way.

The difficulty is that 'should' is a highly subjective word. In fact I would go so far as to say applying formal logic to 'should' is impossible unless you first define it in logical terms (which would never be agreed by multiple parties).

Aside from ethics there is no rational reason for me not to kill someone for personal gain in certain circumstances; most people would regardless say that you should not kill someone else.

Should is generally used to imply that you, or society, feel that you are supposed to do something even if it isn't mandated.

JimmyTheWig

ILW wrote: »

Taxation is forced.

I knew you would say that.
It would be a lovely idea if the taxation system was "everyone pay what they think they should pay", but I can't see it working.
The further removed someone is from what they are helping, the less compelling it is for them to help. Furthermore, the more people there are helping the less difference it makes if one individual doesn't help.

For example, you're walking home in a rush.
There's a car that's run out of petrol that needs pushing to the petrol station just around the corner.
You stop and give them a push, because it's the right thing to do.
However, if there were already a few people there helping then you may not stop to help as one extra person won't make much difference and you really want to get home.
But if (for some perfectly valid reason) there was a way where by you stopping where you were for a few minutes someone's car in another town would make it to the petrol station I'm not sure that many would.

But just because people may choose to get out of paying, doesn't mean it is not right that people pay tax. The rules need to be set to make them as fair as possible, then those rules (unfortunately, but unavoidably) need to be enforced.

JimmyTheWig

danothy wrote: »

The reasons of compassion/ethics/morality/justice are all subjective and arbitrary creations that just mask the lack of reasoning.

That may be so, but they are reason enough for me.

I think opinions expressed on who 'should' pay what tax shouldn't include the word 'should' ...

Based on reasons of compassion/ethics/morality/justice, I believe that the rich should pay more tax.
Whether you agree with my wording or not, I presume that you know what I mean.
Then please provide alternative wording that you think would be more suitable.

danothy

N1AK wrote: »

The difficulty is that 'should' is a highly subjective word. In fact I would go so far as to say applying formal logic to 'should' is impossible unless you first define it in logical terms (which would never be agreed by multiple parties).

Aside from ethics there is no rational reason for me not to kill someone for personal gain in certain circumstances; most people would regardless say that you should not kill someone else.

Should is generally used to imply that you, or society, feel that you are supposed to do something even if it isn't mandated.

I agree with what you're saying, but taxation isn't an issue that has such a consensus. It's markedly dividing in fact, so much so that while only strictly you shouldn't use the word 'should' for an assertion about the abstract morality of murder, you definitely shouldn't use the word 'should' about the absolute correctness of any given form of taxation.

The exception is to say that one should pay tax as defined in law though, as whatever tax situation is arrived at, it is a societal rule, and therefore compelling.

JimmyTheWig wrote: »

That may be so, but they are reason enough for me.

And I'm fine with that, but they're not absolute reasons.

JimmyTheWig wrote: »

Based on reasons of compassion/ethics/morality/justice, I believe that the rich should pay more tax.
Whether you agree with my wording or not, I presume that you know what I mean.
Then please provide alternative wording that you think would be more suitable.

I do know what you mean, and I don't think it's unreasonable in fact, which is why I hate to see that opinion (that is easily defensible) conflated with assertions of the statement of the correctness of the arrangement it alludes to being factual in nature, which is not defensible.

Honestly? I would prefer it to be worded something like "Based on reasons of compassion/ethics/morality/justice, I believe that [it is appropriate for the rich to] pay more tax." and I would expect someone taking that position to be able to describe how the benefits outweigh the negatives, thus defending their opinion.

I find it hard to take people seriously or even respect their (possibly valid) opinions when they present those opinions in ways that imply they are facts and then suggest that the truth of it is simply self evident in some way, as it simply is not, it's just their opinion.

dori2o

Pennywise wrote: »

Absolutely spot on there.

A businessman can't get tax relief for wages to his wife if she doesn't actually do the work. If a business does, then it's HMRC's fault for not enquiring and disputing it.

Same with the likes of claiming for dresses, suits, shoes, etc - it's just not allowed for most businesses - people claiming it are getting away with it because HMRC aren't checking up properly - they're not allowed to claim for it.

I've just had a client try to claim for the latest Ipad against his tax - because there's no sign of him using even a PC for his business, I questioned how much time he used it for business - he replied none (as I expected), but had put it through the books because all his mates had done so! As such it's not going in his accounts and tax return - he genuinely thought it was allowed!

So much "pub talk" and so little proper research, made worse by HMRC's incompetence at checking up.

I agree, and I work for them.

But then there's the problem of who exactly is going to do this work. HMRC are already severely understaffed with a further 13,500 jobs still to go before 2015.

People whinge and moan that the CS has become bloated and there's too many people working in the sector, but they also want every companies/businesses tax submissions looked at with a fine toothed comb, twice, then rechecked. There simply isn't enough man hours to do it.

I personally don't think business returns are all that big of a problem to be honest.

One rule I think should be changed is the rule that allow company directors to take the majority of their salaries in dividends.

How is it fair that a company director can pay themselves £7500 in a salary, and take all other income from their business in dividends which are taxed at 10%, 32.5% and 42.5% as opposed to the standard income tax rates of 20%, 40% and 50%. They would also pay no NIC's.

For example, take 2 people, one a Director of a limited company, 1 works for a company as an employee.

Both have an income from their jobs of £35,000

The employee receives no other income other than salary.

The Directors income is made up as follows.

£7500 salary, £27500 dividend income (before tax credit deducted).

The employee will pay £5397 in tax and £3287 NI a total of £8684.

Take home pay £26316.

The director will pay £2750 in tax, and £0 NI.

Take home pay £32250.

Yes the business will have paid tax on the overall income generated from it but how is it fair that people can exploit this loophole for personal gain.

I agree that there has to be an incentive to start your own business and keep it going, but IMO there has to be a limit to just how much people can take in dividends. Maybe 50/50, i.e. the maximum you can take in dividends can be no more than what you take in salary.

Or even simpler, no more than say £20,000 in dividends.

N1AK

danothy wrote: »

The exception is to say that one should pay tax as defined in law though, as whatever tax situation is arrived at, it is a societal rule, and therefore compelling.

But this is just further proof of the inability to properly define should. Many people have no issue with 'cash in hand' work etc. Many people are against speed enforcement. So saying you 'should' pay tax or 'should' follow the speed limit is no more correct than saying those who can 'should' pay more tax. They are all based on individual decisions.

There is no formal standard for the consensus required to use 'should' and none of the use it has been put to in this thread is inherently wrong.