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Where Taxpayers and Advisers Meet

Benefit of registering for VAT (UK)

pinheadplanet
Posts:2
Joined:Thu Apr 06, 2017 11:00 am
Benefit of registering for VAT (UK)

Postby pinheadplanet » Thu Apr 06, 2017 11:20 am

Hi

Before I go ahead I just wanted to check that I am understanding this correctly. I want to register for VAT voluntarily as I am under any thresholds for compulsory registration.

I should gain financially but which example is correct:

I earn £30,000 net pa (pre expenses) and so will charge VAT @ 20% therefore bringing in an extra £6000 pa.

On the Flat Rate Scheme I have to pay the Vatman 11%, so is that 11% of the net £30,000 (£3,300) or 11% of the gross £36,000 (£3,960)?

My expenses are £3,600 pa (let's say that's all Vated) therefore having a Vat content of £600 which I can't claim as I'm on the Flat Rate Sceme.

So is it:

Gross income £36,000
- VAT paid £ 3,300
- Vat unable to reclaim £ 600
= Total income £31,800

OR

Gross income £36,000
- VAT paid £ 3,960
- Vat unable to reclaim £ 600
= Total income £31,440

Obviously I'm ignoring the Tax elements just to make the calculation simpler.

Or am I totally wrong here?
Thanks

les35
Posts:635
Joined:Wed Aug 06, 2008 3:09 pm

Re: Benefit of registering for VAT (UK)

Postby les35 » Thu Apr 06, 2017 4:05 pm

With effect from 1 April , HMRC introduced a higher FRS percentage for 'Low Cost Traders.' As you did not explain what you do, I presume you are a service provider, and therefore may be affected by the new rule. This means your arithmetic will not be so favourable. The new rule is designed to stop people making money out of the FRS.
Whether you should register anyway depends on whether your customers are mainly in business. If so, then you add the VAT to your sales, and you can claim input tax on expenses. In your example, you will be £600 better off in a year.

pinheadplanet
Posts:2
Joined:Thu Apr 06, 2017 11:00 am

Re: Benefit of registering for VAT (UK)

Postby pinheadplanet » Fri Apr 07, 2017 11:39 am

Thanks Les35

Not really worth it is it? By the time I learn the new system, do the extra accounting or even still have to pay someone else to do it, if the benefit is only £600 then I'll just crack on as I am.

My customers are all VAt registered and my industry at 11% is Photography, so yes Service provider

Cheers

AJ16
Posts:12
Joined:Sat Apr 01, 2017 10:52 am

Re: Benefit of registering for VAT (UK)

Postby AJ16 » Tue Apr 11, 2017 3:55 am

Hi, I'm a trader like yourself and not a tax professional but if seems to me that registering for VAT is only something to be seriously considered out of necessity. By that I mean that it would only seem to make good business sense if you want to turnover considerably more than £85,000 in any 12month period.

As your Turnover is so low you may be able to benefit considerably by increasing it by generating more business and/or increasing fees, you would also save the extra work involved in collecting VAT!

les35
Posts:635
Joined:Wed Aug 06, 2008 3:09 pm

Re: Benefit of registering for VAT (UK)

Postby les35 » Tue Apr 11, 2017 9:26 am

Registration for VAT works for small businesses where customers are able to recover the VAT charged. This allows input tax recovery. For example, my turnover was only £15k when I first registered. I recovered VAT on a laptop, etc on my first Return.
I have to prepare and submit Returns, but I need to keep proper records anyway, so that is not a great burden. I actually pay someone to do that; I prefer to release my time for what I am good at!


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