Unsure of whether I would earn enough as sole trader

zygurat789

arvindsond wrote: »

Thats absolutely fine, I can charge my customers the 20% etxra and state it on my invoice, but if I become VAT registered I need ti buy kit and get a discount to get me going as its expensive pc equipment....but in the first year I may not make a profit so I didnt want to get questioned by the government on this as I am a total newb in this area

Thanks again

You would, of course, only charge the extra 20% if you were VAT registered. And it is perfectly acceptable to make a loss in the first year, no one from HMRC would raise any questions because of that.
The 20% VAT extra you charge on your invoices is not yours and you will have to send it to HMRC (VAT) once a quarter less the VAT you have paid on business items like expensive PC kit.

arvindsond

zygurat789 wrote: »

The 20% VAT extra you charge on your invoices is not yours and you will have to send it to HMRC (VAT) once a quarter less the VAT you have paid on business items like expensive PC kit.

Well thats the exact question.... lets say frist year of sole trader earns me 100pounds profit (for one job as an eg) so 20% goes back as VAT to government - 20pounds

But I spend 2000pounds on kit (which costs 1800 (minus the 20% vat))

So am I right in saying it would 200-20 = 180 that the government would end up sending me back at the end of the first year/quarter?

Or do they add on my full time employment salary aswell?

Thanks again guys, you've all been really helpful in this matter

zygurat789

arvindsond wrote: »

Well thats the exact question.... lets say frist year of sole trader earns me 100pounds profit (for one job as an eg) so 20% goes back as VAT to government - 20pounds

But I spend 2000pounds on kit (which costs 1800 (minus the 20% vat))

So am I right in saying it would 200-20 = 180 that the government would end up sending me back at the end of the first year/quarter?

Or do they add on my full time employment salary aswell?

Thanks again guys, you've all been really helpful in this matter

First separate profits and salary which are your income from VAT which is not and ne'er the twain etc.
The VAT principle is correct, the figures are a bit out. It woul be £20 receive on behalg of VAT and £333 paid so you would get £313 back

warwicktiger

Comment:

I am a professional carpet cleaner. I turn under much less than the registration threshold (£77000?) p.a. But if I got close to the threshold rather than register I would stop work! I think anyone in business would tell you not to bother until and unless you have to!

In your example:
Sales £100 i.e £83.33 Plus Vat of 16.67
Expenditure £2000 £166.67 " " " 333.33

Yes you would have overpaid VAT by £316.66 and this would be repaid to you. Now, how much time and effort is involved to get that VAT back?

zygurat789

warwicktiger wrote: »

Comment:

I am a professional carpet cleaner. I turn under much less than the registration threshold (£77000?) p.a. But if I got close to the threshold rather than register I would stop work! I think anyone in business would tell you not to bother until and unless you have to!
Read post 10 which was spot on. The important criteria is are your customers VAT registered or not.


In your example:
Sales £100 i.e £83.33 Plus Vat of 16.67
The example is an invoice of £100 + VAT

Expenditure £2000 £166.67 " " " 333.33

£2000 paid is £1667 + VAT @ 20% £333

Yes you would have overpaid VAT by £316.66 and this would be repaid to you. Now, how much time and effort is involved to get that VAT back?

If you keep your books properly the VAT figures just fall out of them.
Couple of entries on the HMRC website and it's all done, less than 30 mins
I note you are a carpet cleaner not an accountant.

arvindsond

If I become VAT registered is there an annual fee to pay?
It seems to me that it makes sense to do this, becasue aslong as I keep my books in order (i.e. ingoings and outgoings) then the VAT should not be too difficult to calculate, and zygurat789 you say this is quite easy to do online?

thanks again

zygurat789

arvindsond wrote: »

If I become VAT registered is there an annual fee to pay?
It seems to me that it makes sense to do this, becasue aslong as I keep my books in order (i.e. ingoings and outgoings) then the VAT should not be too difficult to calculate, and zygurat789 you say this is quite easy to do online?

thanks again

No it's a free club

chalkie99

If I become VAT registered is there an annual fee to pay?

No.

the VAT should not be too difficult to calculate

No, it shouldn't, but having seen your examples in earlier posts, you don't seem to have the basic grasp of it.

lets say frist year of sole trader earns me 100pounds profit (for one job as an eg) so 20% goes back as VAT to government - 20pounds

But I spend 2000pounds on kit (which costs 1800 (minus the 20% vat))

Firstly, VAT is based on turnover not profit.

£100 including VAT is 100/6*5 = £83.33 and the VAT to pay is £16.67

If your equipment costs £2000 including VAT then that works out as 2000/6 *5 = £1666.67 + £333.33 VAT.

Your VAT would be the difference between the amount you invoiced and the amount you spent on allowable expenses (the equipment).

You would get back £316.66.

That is the theory. However, in practice I think you can expect an investigation from the VATman if you claim the expense of computer equipment and then declare a turnover of only £100 for a year.

Also, who will your customer be? Are they VAT registered?

im-lost

Talk to an accountant, it maybe beneficual to go on the flat rate vat scheme, where you forgo claiming back vat, But you pay vat at a lower rate of vat, say between 8% and 14% depending on your industry.

You say you do design work, so I'm going to guess you have very few outgoings, because you're selling yourself really.

You can still claim the vat back on capital expenditure, over I think £2000 so that's you covered with reclaiming vat.

But you should be quids in, well a bit better off as you still charge your customers vat at 20% but only pay over a portion of it, which in most cases works out better than if you reclaimed on your expenses.

mrs_sparrow

Wow, you really should not become VAT registered and expect to do the paperwork on your own if you cannot even understand the basic rules.

You can register for VAT - however, you cannot register to save 20% on your kit and then except to de-register for a long time, the VAT man will see right through this and you will have to pay the VAT back, plus you'll probably get fined for trying to fiddle it in the first place.

You will have to charge VAT on every service that you offer, it is not on profit so if you sell a service for £100, you charge VAT on this. If he sees you spending out and claiming it back but not offering any service for work (ie. cash sales) you will be picked up for investigation and this can go on for a year.

The paperwork has to be done correctly, you have to keep all your receipts, you need to give invoices in the proper format with VAT number shown and th amounts analysed. You have to file your VAT return once a quarter.

Don't screw with the VAT man thinking you can save a few quid as he has the power to send you to prison and to seize any assets you have. It really isn't worth the risk just to 'save' £400 quite frankly.