VAT registration - should I set it up myself

danwednesday

Hi,

I'm looking to become VAT registered, not because of earnings but because I recently moved premises and my new rent is subject to VAT, which I could obviously save if my company was VAT registered.

I can set this up online, in the same way I did with my limited company, but I don't know much about VAT so I'm not sure if I should do this. Are there any drawbacks, anything that could go wrong in going the self-set-up route?

Online, the service is about 50 quid - how does this compare to that of an accountant?

Thanks folks!

chappers

get on to the relevant department of HMRC shouldn't cost you anything to set up.
Do remember you will have to charge VAT on your sales, you won't be saving anything unless of course your VATable outgoings are greater than your income.
if your turnover is below the VAT threshold i would personally stay unregistered

Pennywise

danwednesday wrote: »

Online, the service is about 50 quid - how does this compare to that of an accountant?

You can apply online directly from HMRC's own website www.hmrc.gov.uk - free of charge. You can either apply online which takes a little time as you have to apply for registration codes/passwords etc., or simply print off the form and post it back to them. It costs NOTHING and the form is simple - just a few basic questions about your business.

If you need advice then you need to talk to an accountant, i.e. whether or not to register, whether to use the normal basis or cash accounting, which retail scheme to use (if you are in retail), whether to use the fixed rate scheme, etc.

The £50 you quote is simply for someone else to fill your form in for you - of course, you have to give them all the same information yourself anyway, so what's the point?

danwednesday

Thanks folks, I should have tried HMRC first I suppose! You've saved me £50, thanks.

chappers wrote: »

Do remember you will have to charge VAT on your sales, you won't be saving anything unless of course your VATable outgoings are greater than your income.

That's not right surely - perhaps the wording isn't quite right? If I'm VAT registered, I will charge VAT on my invoices which will then be payable to HMRC - so that's a neutral (I charge 17.5% more, but pay 17.5% to HMRC). On my purchases I don't pay VAT - which for things like rent, computer equipment etc I save 17.5%. This is the situation, no? It doesn't matter what my income is, because the VAT on that is neutral (except for more admin time).

chappers wrote: »

if your turnover is below the VAT threshold i would personally stay unregistered

That's interesting - out of curiosity, why? If you could save £1000 per year (which is around what I would save) would you consider it? If not, why?

Thanks again folks...

Brighty

You charge VAT on invoices at 17.5%, that is then payable to HMRC, but you deduct of any VAT you have paid.

Also, if like me you have minimal VATable outgoings, it may be worth your while joining the 'flat rate VAT' scheme, where you pay a flat rate on your total turnover, the rate is dependant on your type of business. Mine is 12.5%. If you have low or no vatable outgoings it works out better for you. For example before joining the scheme, i would invoice £1000+VAT = 1175, with no outgoings i would owe 175 in VAT. On the flat rate scheme i still charge £1175, but the VAT i owe is only 12.5% of that = £146.88, so i'm £28.12 better off.

Brighty

danwednesday

Brighty wrote: »

You charge VAT on invoices at 17.5%, that is then payable to HMRC, but you deduct of any VAT you have paid.

Hmm, I'm not sure I'm fully understanding the general VAT situation. I thought it was as I'd mentioned above, but now I'm totally not sure!? I'd better head on over to HMRC again and have another read through their info.

Thanks for the info about flat rate VAT - no doubt there's more to it, but I'll have a look into that too.

danwednesday

I've just been looking into VAT on the HMRC site, and it is as I'd thought. Basically it would be a lot more admin, but would ultimately save money.

Regarding the flat rate VAT system this sounds too good to be true. I can't see why they'd let you charge 17.5% on all of your sales, but pay HMRC only 9-13% (depending on sector)? Are you sure you aren't just allowed to charge the same VAT as you have to pay? Call me a cynic, but I'm not used to the treasury doing anyone who's enterprising or entrepreneurial any favours at all - and I'm dubious as to why not everyone with a turnover less than £150,000 doesn't do this - it would save thousands if you really could make a profit from charging more VAT than you pay out.

Brighty

It is as i said, being VAT registered means you charge VAT on invoices, but then have to pay this to HMRC, the upside is that you claim back any VAT you've paid. Here's an example.
Currently you invoice £1000 in say a month, plus make a purchase of £100+VAT = £117.50, you keep 1000-117.5= £882.50, in otherwords, you pay the VAT on your purchase.

If you're VAT registered you invoice £1000+VAT=£1175, plus make the same purchase of £117.50, but this time you also owe HMRC the difference between incoming and outgoing VAT = £175-£17.50=£157.50. So you keep 1175-117.5-157.5=£900, so in other words you get the VAT back on your purchase.

Brighty

Brighty

Re Flat rate VAT, you charge 17.5% on your £1000 = £1175, you then owe 12.5% of the 1175 = £146.88, but you can't then offset any purchases, so it only works out better if you have few VATable purchases. The 12.5% is an average, some people will be better off, some worse off, but it saves on paperwork for you and HMRC

danwednesday

I think we're saying the same thing. The end situation is that effectively VAT on goods/services sold is going to be neutral, VAT on goods purchased is going to be redeemable. Therefore, if the cost of administering VAT is outweighed by the savings made from claiming back the VAT paid on goods, it's worth doing.

Having read up some more about flat rate VAT, I think the catch is that goods purchased are still vatable. It's not entirely clear though.

Brighty

Yeah pretty much

One thing to consider when becoming VAT registered is whether or not your customers are. If they are registered, then they get back any VAT you charge them, so it's no odds to them. If they are not VAT registered, then they have to pay it, meaning effecively you are putting your prices up 17.5%, this may lose you some or all of their custom.