VAT deregistration

vivatifosi

With the changes to the flat rate scheme imminent, I wondered if anyone else here is looking to deregister

In addition to my main job I run a small limited co which is VAT registered. My expenses are simple but small, so cba to claim through the normal scheme. Most of the small businesses I know are looking to do the same as we are all below threshold.

I was curious to see if anyone else was looking to do the same and whether the unintended consequence of closing a loophole could be lower vat takings (hence link to economy for forum rules for this board).

What are you planning on doing (if circumstances similar... ie doing it now, don't need to stay in as t/o under)?

michaels

Have to admit to not understanding the details.

At the moment do you pay VAT but not claim it back and in the future you won't pay any so the govt will lose what you pay but not gain form you no longer claiming back? How many businesses might this affect and how much per business?

vivatifosi

There are different flat rates, but the one for my business is 14%.

Say i earned 10k and charged VAT on that. That would be 12k. HMRC then take 14% of the gross figure, so that's £1680 of the VAT. The other £320 comes in to my business.

The new flat rate for limited cost businesses is 16.5%, which means that the VAT man gets back pretty much all of it. It is to close a loophole where people use VAT to generate extra money for their business. Some businesses will still claim back VAT but switch to the normal method.

however the vast majority of small businesses that i know and that like me are below the threshold have chosen instead to deregister, as the burden of doing VAT does not seem worthwhile if not on the flat rate. So instead of getting 14% of 12k, HMRC will now get nothing, because we are no longer going to be registered.

Still it was a nice little quid pro quo while it lasted and the country obviously doesn't need my tax £££.

davomcdave

I used to use this scheme a long time ago but TBH I can't remember how I used to scalp it.

Maybe worth paying a one-off fee of a couple of hundred squids to a proper accountant to get chapter and verse?

vivatifosi

I have a proper accountant... He told me to get the heck out and that for the amount of VAT it isn't worth the admin burden.

I am just curious as to whether the unintended consequence of closing the loophole will be less VAT collected. It is done electronically so the admin burden on the HMRC can't be that great... Plus nobodys going to get rich on a tax advantage of c£300 on 10k.

For me it just made collecting money on behalf of HMRC worth it, which as it was voluntary for me and everyone else below the threshold it now isn't.

You can still use the flat rate, but to do so you have to qualify. And to do that they now only take non capital goods into account, whereas most of my bills are for services, or even a new laptop.

silvercar

What will be the effect on your business?

If you deregister for VAT then you will no longer charge VAT on your sales. Quite probably you will need to put your net prices up as you won't be able to reclaim VAT on your purchases. So that 10k may well become 11k.

Depending on your business, you may increase sales because your price will be lower (particularly if competitors are still charging VAT.)

I'd concentrate on the effect on your business and let the government look after itself!

Pennywise

Presumably you were only registered because you could add VAT and your customers could claim it back (assuming they were vat reg businesses). So deregistration has no effect on the UK as it was neutral anyway.

Only if you were selling to the general public would there be a net loss to HMRC if you deregister. But if you were selling to the general public, then nothing to stop you selling at the vat inclusive price as the market can clearly bear it. I.e. if you were a shop selling mars bars, the price would be the same whether you were registered or not.

Thrugelmir

vivatifosi wrote: »

So instead of getting 14% of 12k, HMRC will now get nothing, because we are no longer going to be registered.

Presumably the other party claims £2k of input tax though. In effect the HMRC has saved itself the £320.

vivatifosi

Thrugelmir wrote: »

Presumably the other party claims £2k of input tax though. In effect the HMRC has saved itself the £320.

Some of my customers not vat reg. I started thread more to see if other people doing same, as a lot of the small businesses I know are. I just haven't seen anyone else discussing it. Maybe its not that typical after all and my peer group is a bit of an outlier...

vivatifosi

Thrugelmir wrote: »

Presumably the other party claims £2k of input tax though. In effect the HMRC has saved itself the £320.

I think that may be the nub of it if most of the companies are selling solely b2b

Thrugelmir

vivatifosi wrote: »

I think that may be the nub of it if most of the companies are selling solely b2b

System has been abused no doubt.