VAT Rebate for self employed through accountant

wullie-eng

Hi folks,

Not sure if this is the right place or not but I'm after some advice.

Recently CIS registered and working self employed, I get paid through a company called boss projects.

I was contacted to by a company called OBK LLP, they have advised me that I am entitled to a VAT rebate under the flat rate scheme.

They ran over some figures and it seemed a worthwhile pursual as the construction industry is quite difficult at the moment and any cash coming in is a boost .

After having most of the day to mull it over though I'm not sure it's the right thing to do? I currently do not have to register for VAT as currently below the threshold, but what is worrying me is if I go through with this and they register me for VAT and claim back this money, which they state is from my income only, is this OK and what detrimental effect could this have on myself?

Not sure if this is standard practice or a legal loophole that they can make a quick buck from at my expense? They have stated that they will be responsible for my VAT affairs and this does not effect any other part of my work or income.

Anyone any ideas? I fully intend to take it up with HMRC but thought I'd try here in the interim.

McKneff

If you are not registered for VAT, you cannot claim a rebate.

phill99

If you are not charging VAT then you can't get a VAT rebate.

Savvy_Sue

McKneff wrote: »

If you are not registered for VAT, you cannot claim a rebate.

However, there are some situations where it's worth registering voluntarily. But my advice to the OP would be to talk to his accountant (if he has one), or get one (if he does not).

I wouldn't immediately trust a company who cold called me. I'd suspect something like the tax reclaim companies who offer to do it for you, and bill you 28% for the privilege.

wullie-eng

Currently not registered but the rebate involves registration.

It wasn't a cold call as such, obk llp work along side the payment company BOSS projects.

Obk offer the service of self assessments to clients of Boss aswell as various other items, this being one of them.

Savvy_Sue

OK, so what are their charges? See also this thread, where what they are offering is almost certainly NOT worth paying them for!!!

JasonLVC

First, some basics on VAT itself :

Plumber. Not VAT registered
The plumber cannot reclaim any VAT on purchases of tools, van or consumables. The plumber does not charge VAT to customer. Plumber buys in taps for £10 + £2 VAT (£12) and sells taps to customer for £20 no VAT. Plumber has made £8 profit on tap sale. (£20 sale - £12 cost = £8)

Plumber. VAT registered (normal VAT)
The plumber can reclaim any VAT on purchases of tools, van and consumables. The plumber does have to charge VAT to customer though. Plumber buys in taps for £10 + £2 VAT (£12) and reclaims the £2 VAT. Plumber sells the taps for £20+VAT (£24) and plumber pays over £4 to HMRC. So profit on job is £10 purchase less £20 sale = £10 profit.

Or if customer haggles hard, plumber may sell taps for £20 including VAT (so same price as if he wasn't VAT registered). So of that £20, £3.33 is VAT due to HMRC so plumber gets to keep £16.67 so the profit now on this job is £10 purchases less £16.66 sale = £6.66 so still in profit but less than the unregistered plumber as plumber had to keep the sale price at £20 to keep competitive with the other plumbers in the market.

I'll do a seperate post for the next bit......

Pennywise

Just go to any accountancy practice and ask them. This is simple bread & butter work to any decent accountant. Best to have your accounts/self assessment and your VAT dealt with by the same accountant. Don't go with the big national "specialist" firms as their charges are often ridiculous and service levels often poor.

Your contracting firm are selling your details to OBK and will receive an introducers' commission/fee if you sign up with OBK. Who do you think pays for that - yes, it's you, because OBK will charge you more so that they can give the commission to your contractor.

There's nothing special about the flat rate scheme - half an hour for an accountant to talk you through it and make the application. Simple software (which your accountant can recommend) will enable you to make your own quarterly VAT returns at no charge.

Don't be fooled into thinking any of this is rocket science or difficult. Don't even be fooled into thinking you need any accountant to do it - lots of people do it themselves by a bit of internet research and via HMRC's website.

JasonLVC

The scheme OP has been offered I think will work like this :-

The flat rate scheme sees you register for VAT but you cannot reclaim VAT on purchases. However, you don't pay over all the VAT you charge the customer to HMRC. You pay a % based on your trade sector.

Example. You sell these damn taps again for £20 + £4 VAT (£24). Ordinarily you then pay HMRC £4.00 and you keep the £20 you charged originally.

Under flat rate scheme, general building/construction services is 9.5%. This means you pay HMRC 9.5% of the total invoice/sale so would be £24 x 9.5% = £2.28 so ordinary scheme you pay over £4.00 but on flat rate you pay over £2.28 but your customer has still paid you £20 + £4 VAT so you get to keep the extra VAT. You cannot reclaim any VAT on purchases so the tap cost £10 + £2 VAT (£12) so your cost of sale would be :-

Purchase £12, sold tap for £20 + £4 VAT (£24). Pay over £2.28 and keep the rest (£24 - £2.28 = £21.72 to keep, less the £12 cost of buying the tap = £9.72 profit).

Sorry, that was a lot of numbers.

So the scheme exploits this 9.5%. If you are using CIS then it means most of your customers are other businesses, not man on the street and so you would have to raise a back dated invoice to your customer for VAT (which they can reclaim in full if VAT registered as big contractors cannot use flat rate scheme as only can be used if your turnover is less than £150k per year).

You are then VAT registered, cannot reclaim any VAT on purchases but when your backdated invoice is paid by your main contractor you only pay 9.5% of the VAT over and keep the rest, thus you gain.

However, you are VAT registered and will have to adhere to all the rules, any sales you do outside of CIS work for man on the street will now be subject to VAT so you'll be more expensive than the unregistered bloke.

There's nothing wrong with this per se, not so much a loophole as just taking advanatge of a scheme retrospectively. It is certainly not illegal or dodgy, but if you didn't follow my posts above, then you need to get seperate advice and make sure you do understand it as at the end of the day, any errors or failures will lead to penalties which will be YOURs to pay, not your advisors.

Personally, a good book-keeper for a few quid will point you in the right direction without the need to involve third party agents.

JasonLVC

As an aside, if you purchase capital items (like a van or tools) and the individual value is over £2k (so if tools it must be a really big expensive one), then the flat rate scheme does allow you to reclaim the VAT on those things in full.

Its not important to your question but I'm not the only pedant on the forums, so just trying to give the full picture on the scheme without complicating it for you.

Wywth

Definitely worth having a word with an accountant regarding voluntarily registering before you make any final decision.

But simply, If your customer is a large company that is VAT registered themselves, they probably won't have any issue with you adding VAT to your invoices (once you are VAT registered). That's because they will reclaim any VAT as input tax.

But if your customers are small and not VAT registered, you will effectively be increasing the prices you charge by 20% (unless you take a hit) in what you already describe as a "quite difficult" business.

Perhaps ask others you work with if they are VAT registered?