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VAT registration

Hello!

I am a newly self employed gardener and was wondering if I should register for VAT in order to reclaim VAT on tools and fuel as get through a lot of these two. I know I don't have to register as I earn less than 8,000 a year before tax but because the amount of VAT I could reclaim is significant I wonder if I should register?

Also I have heard I will need to charge VAT on my Labour, is this true?

Any advice would be welcome as I am new to self employment.

Comments

  • KMT650 wrote: »

    Also I have heard I will need to charge VAT on my Labour, is this true?

    Yes that's right.

    Who are your clients? If it is not to VAT-registered businesses (eg to residential clients instead) then I think you will be cutting your nose off to spite your face if you register.

    To make the admin burden pay for itself, you would need to be spending a lot on VAT. If your income is as low as you quote then I can't see this being the case.
  • This is true, both me and hubby are self employed. You will have to charge vat on all sales .. gardening is 20% which when you put your vat return in will have to go to the tax man, but yes you will be able to claim vat business related purchases (beware not all are actually taken onboard as genuine business related costs!) not all are 20% either ie electric, gas and insurance i think are 5%

    So at the mo for each £100 you earn you will have regular outgoings to pay out

    When you are vat registered for each £100 you earn has £20 taken off = £80 left to pay outgoings.

    Unless your spending over £80 in vat alone to get too and from customers and also run your business you will loose money by being vat registered. This is because the amount you can claim back is alot less than you have to pay.
    Hi, we’ve had to remove your signature. If you’re not sure why please read the forum rules or email the forum team if you’re still unsure
  • KMT650 wrote: »
    Also I have heard I will need to charge VAT on my Labour, is this true?

    Any advice would be welcome as I am new to self employment.

    Voluntary VAT registration is only sensible in two circumstances:

    1) The vast majority of your customers are VAT registered or in some otherway excluded from paying it

    2) Your selling a 0% rated product/ service

    If you dont meet either of these then yes you'll get the VAT back on the tools but you'll have to pay 17% of all your takings to the VAT man or increase your prices by 20% which presumably would make you uncompetitive otherwise you'd have raised them to that already.
  • googler
    googler Posts: 16,103 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    ...and let's not forget the admin overhead of having to get a VAT receipt for every purchase, and of having to return every THREE months to the taxman.....

    Having been down this road, my advice is not to be VAT registered unless you have to, or unless you fall into one of the two groups mentioned above
  • googler wrote: »
    ...and let's not forget the admin overhead of having to get a VAT receipt for every purchase, and of having to return every THREE months to the taxman.....

    Depends on volume, for me it would take about an extra 15 minutes a month I'd guess.

    Already have to get a receipt for every purchase. Already have to put it into the ledger, only difference would be splitting out the VAT element into a separate field. Software generates the return and so copy/pasting the numbers into the online form is less than 5 minutes effort.

    I'm flat rated so just miss one of the steps.
  • My clients are all residential. Does that mean if VAT registered businesses get VAT registered businesses to do work for them, the client business doesn't pay VAT on top of Labour?

    I guess I'm too small at the moment to be worrying about working the tax system! I definitely want to keep my nose.
  • KMT650 wrote: »
    My clients are all residential. Does that mean if VAT registered businesses get VAT registered businesses to do work for them, the client business doesn't pay VAT on top of Labour?

    They do pay it but can reclaim/ offset it and so from a cashflow perspective it makes a bit of a difference its ultimately the net price they care about.

    As an easy example, there are two IT chaps:

    1) Charges a net £110 an hour and isnt VAT registered

    2) Charges a net £100 an hour but is VAT registered so customers have to pay £120

    For a personal customer £110<£120 so number 1 is cheaper for them

    For a vat registered business customer though they can claim back the VAT so whilst evidently £110<£120 once they get the vat back its £110>£100 so IT person number 2 is cheaper for them (as long as their cashflow can cover the initial higher cost)
  • I understand now.

    Thank you everyone for sharing knowledge with me.
  • KMT650 wrote: »
    My clients are all residential. Does that mean if VAT registered businesses get VAT registered businesses to do work for them, the client business doesn't pay VAT on top of Labour?

    I guess I'm too small at the moment to be worrying about working the tax system! I definitely want to keep my nose.

    I'm not sure what you are asking here.

    A VAT registered business ("A") buying services from a VAT registered business ("B") receives a bill from B which charges A for VAT on basically everything.

    Have a look at the bills you get from your garage for servicing. It charges VAT on the labour costs where these are shown as an hourly rate as well as on parts/consumables.
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