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Where Taxpayers and Advisers Meet

General tax enquiry, Corporation tax,Vat and Income tax

dave7734
Posts:1
Joined:Sat Nov 04, 2017 7:28 pm
General tax enquiry, Corporation tax,Vat and Income tax

Postby dave7734 » Sat Nov 04, 2017 7:40 pm

hi just a quick question, i own a limited company and we have just gone over the VAT threshold so will now be registering for VAT, my business is very competitive and my prices will have to remain the same otherwise i will have no customers so unfortunately i will be paying the VAT out of my profits

my question is, my corporation tax is %20 the vat is %20 and after ive paid it to myself in dividends and i go over the 40% tax threshold i will be charged at 45% doesn't that mean that anything after ive hit the 40% threshold i will be paying 80% tax on that money?

e.g i will be taxed 60% on my income (corporation tax,VAT,Income tax) until i pass the 40% threshold and then il be paying 80%?

or am i working it out wrong?

thanks in advance

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: General tax enquiry, Corporation tax,Vat and Income tax

Postby bd6759 » Sun Nov 05, 2017 10:52 am

Yes, you are totally worng.

If you were correct, you would currently be paying 60% tax.

SteLacca
Posts:448
Joined:Fri Aug 07, 2015 2:17 pm

Re: General tax enquiry, Corporation tax,Vat and Income tax

Postby SteLacca » Mon Nov 06, 2017 2:32 pm

For a start, you don;t pay the VAT, your customers do. You are simply an unpaid tax collector in that regard.

For other taxes, you need to look at the interaction, and the reliefs. For example, any salary that you withdraw (and, of course, pay the appropriate taxes on), is relivable in the company, thus saving corporation tax.

It's not a straightforward cumulative effect.

robbob
Posts:3228
Joined:Wed Aug 06, 2008 4:01 pm

Re: General tax enquiry, Corporation tax,Vat and Income tax

Postby robbob » Mon Nov 06, 2017 3:12 pm

In some respects vat is completely independent of corporation tax and profits - vat is with reference to vatable sales and to some extent inputs you can claim back.


This is dangerous in that accounting for vat could completely wipe out your profit - albeit if that happened you probably wouldn't need to worry about calculating the corporation tax.

I would start by calculating what you think your vat payable based on a sample 3 months - and see how much that amount multiplied by 4 deducting from your net profit would hit you. simplest est being 1/6 of sales banked less input vat reclaimed on expenses for that same period - this is presuming there is no flat rate - zero rated complications.

Note things may not be so bad if you are able to add vat on top to some of your customers - eg a vat registered customer will be getting your supplies cheaper if you keep the price the same - however if you don't know how to identify them that will be an issue.

Its not uncommon for business to be 8-10k worse of on 85k of sales if they need to pay full vat cant charge more and dont have much to reclaim.

This may seem ridiculously unfair but i heard mention recently of a proposal to massively reduce the vat threshold to solve this anomaly - ie everyone between 26k and 80k is presumably worse off to reduce that unfairness compared those trading just over the current 80k limit - ridiculous again but true. They might be able to get away with this due to the fact most overseas counties have lower registration threshold and all the lobbying (aka paid bribes by big companies who would probably quite happily have a nil registration threshold)


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