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questions from a flat rate VAT self employed guy

scaredpassenger
Posts: 5
Joined: Tue Nov 14, 2017 11:04 am

questions from a flat rate VAT self employed guy

Postby scaredpassenger » Tue Nov 14, 2017 11:34 am

hi, First time posting here

I'm a self employed sole trader, my question is in regards to how much I'm charging my customers and what the costs are to myself (I'm flat rate registered)

for example if i purchase some equipment from my suppliers at £200 + VAT I'm paying them in total £240
I then charge my customer £333.33 + VAT with my customer paying £400 total for the same product with my own programing

my question is basically as I've already paid the VAT on my original purchase surely the vat element when i resell the item should only be on the extra that i charge on top as I've already paid the vat when i purchased the product

I'm struggling to get across what I'm trying to say here

hopefully someone gets what I'm aiming at, basically if I've already paid the vat on the original purchase, why then should the government get the vat again on the same product when i resell it? its making what I'm selling way more expensive than all the other re sellers who must all buy it from the same provider as me (as their the only manufacturer) (and I also know my competition are definitely paying the same as me from the supplier)

hopefully someone reads this and can offer me some sort of advice!

thanks

robbob
Posts: 2435
Joined: Wed Aug 06, 2008 4:01 pm

Re: questions from a flat rate VAT self employed guy

Postby robbob » Tue Nov 14, 2017 12:24 pm

my question is basically as I've already paid the VAT on my original purchase surely the vat element when i resell the item should only be on the extra that i charge on top as I've already paid the vat when i purchased the product


That's completely wrong vat doesn't work like that - from a "sales invoicing perspective" that is, note within all flat rate categories in theory there is an adjustment for the fact that you pay out vat that you can't recover on your expenses so the fact you don't pay vat across at the full 205 on sales received accounts for this - the higher your expenses with vat paid out the less likely the flat rate is to be beneficial - albeit you need a certain amount of expenses to avoid limited cost trader restrictions.

Note even on normal vat you still bill vat at 20% - hmrc are more than happy for vat to be charged multiple times - they are however presuming most middle people like you will have a vat neutral situation - this is normally but not always the case.


hopefully someone gets what I'm aiming at, basically if I've already paid the vat on the original purchase, why then should the government get the vat again on the same product when i resell it?

There isn't a double charge if you swap to normal vat - you have the option to swap to normal vat and avoid this issue - as you will then be able to claim input vat back as a discount from your vat bill.

scaredpassenger
Posts: 5
Joined: Tue Nov 14, 2017 11:04 am

Re: questions from a flat rate VAT self employed guy

Postby scaredpassenger » Mon Nov 20, 2017 5:45 pm

Thanks, in that case how does my personal liability towards tax I pay work? When I put my return in at the end of the year for the vast majority of work as a subcontractor I understand that my full bill for everyday will also be available to pay tax at the applicable rate

However when I’m doing a supply and fit job where by I supply goods and labour, I end up paying a personal tax on the full amount of the invoice (including goods I’ve purchased to then resell, or do I need to split it so I only pay personal tax on my labour aspect and the goods aspect is treated differently (I.e I don’t pay personal tax on goods I purchased to resell?), so when I look at my costs involved I pay vat on the full amount but only my labour costs incur personal tax?

I hope this makes sense, I’m going to see a private advisor in the next few weeks as currently my wife deals with my company finances (she is head of the accounts department for a large manufacturing company) but due to being a sole trader I’m in a completely different scenario to how she normally works, she’s also pretty ill and has had a baby recently so I’m trying to take the pressure off of her!

Thanks for any assistance or advice again!

scaredpassenger
Posts: 5
Joined: Tue Nov 14, 2017 11:04 am

Re: questions from a flat rate VAT self employed guy

Postby scaredpassenger » Mon Nov 20, 2017 5:46 pm

scaredpassenger wrote:Thanks, in that case how does my personal liability towards tax I pay work? When I put my return in at the end of the year for the vast majority of work as a subcontractor I understand that my full bill for everyday will also be available to pay tax at the applicable rate

However when I’m doing a supply and fit job where by I supply goods and labour, I end up paying a personal tax on the full amount of the invoice (including goods I’ve purchased to then resell, or do I need to split it so I only pay personal tax on my labour aspect and the goods aspect is treated differently (I.e I don’t pay personal tax on goods I purchased to resell?), so when I look at my costs involved I pay vat on the full amount but only my labour costs incur personal tax?

I hope this makes sense, I’m going to see a private advisor in the next few weeks as currently my wife deals with my company finances (she is head of the accounts department for a large manufacturing company) but due to being a sole trader I’m in a completely different scenario to how she normally works, she’s also pretty ill and has had a baby recently so I’m trying to take the pressure off of her!

Thanks for any assistance or advice again!

robbob
Posts: 2435
Joined: Wed Aug 06, 2008 4:01 pm

Re: questions from a flat rate VAT self employed guy

Postby robbob » Mon Nov 20, 2017 7:16 pm

However when I’m doing a supply and fit job where by I supply goods and labour, I end up paying a personal tax on the full amount of the invoice (including goods I’ve purchased to then resell, or do I need to split it so I only pay personal tax on my labour aspect and the goods aspect is treated differently (I.e I don’t pay personal tax on goods I purchased to resell?), so when I look at my costs involved I pay vat on the full amount but only my labour costs incur personal tax?

I hope this makes sense, I’m going to see a private advisor in the next few weeks as currently my wife deals with my company finances (she is head of the accounts department for a large manufacturing company) but due to being a sole trader I’m in a completely different scenario to how she normally works, she’s also pretty ill and has had a baby recently so I’m trying to take the pressure off of her!


Ok sales invoice labour 1000 and materials say 300 (net of vat price passed on to customer with nil markup - ie materials cost you 360 cash price including vat)

so sales inv 1300+vat 260 = 1560 gross
you have spent 360

If you are on say flat rate vat of 14.5% - vat payable to hmrc will be £1,560 * 14.5% = £226.20 - i am presuming there is no "limited cost trader restrictions here"


so to calculate profit subject to personal tax everything is calculated net of output tax you paid across to vatman and net of any reclaimable input vat (nil here) -


so your sales will be +1560-226.20 = 1333.80
expenses will be +360.00 (gross value as no input vat claimed)
profit subject to tax = 1333.80 - 360 = £973.80


Note this figure is exactly the same as gross income 1560 less gross expenses - 360 - less 226.20 vat to be paid = 973.70. in some respects you could do your calcs that way but nomally when in business the figures are always shown net of vat


Note i am hoping your business model is not along the lines of
sales invoice 300 labour and 1000 materials

if that was the case your sales net of vat would be 1333.80 and your expenses paid out would be 1200 leaving only 133.80 profit (I.e practicably speaking more than half your labour has been lost due to the fact that input vat cant be claimed back)

I am guessing this is all as clear as mud

scaredpassenger
Posts: 5
Joined: Tue Nov 14, 2017 11:04 am

Re: questions from a flat rate VAT self employed guy

Postby scaredpassenger » Mon Nov 20, 2017 7:44 pm

Thanks for the prompt response generally speaking my goods price make up 60-65% total cost to my customers, I think I fully understand your response though so thank you very much!

My flat rate is 9.5% by the way with no trader restrictions


For instance I buy the product in from the supplier at 200 inc vat, I then do my programming and sell it to my customer for £400 inc vat, my sales price has to cover my labour time for the programming, the cost of p&p to the customer (£15), my tax liability etc

robbob
Posts: 2435
Joined: Wed Aug 06, 2008 4:01 pm

Re: questions from a flat rate VAT self employed guy

Postby robbob » Tue Nov 21, 2017 12:58 pm

Thanks for the prompt response generally speaking my goods price make up 60-65% total cost to my customers, I think I fully understand your response though so thank you very much!

My flat rate is 9.5% by the way with no trader restrictions


Without fully crunching the numbers i would guess that you would be much better off on normal vat - i have posted details below for 50% materials and normal vat method pays less vat across - that's before factoring in the extra vat that you can also reclaim on your business overheads.

One added danger of flat rate is that even if you do a zero rated / reduced rated job (not uncommon in construction industry) - then you have to pay the 9.5% vat on the sale even if you havent billed your customer vat strange but true)


gross
sale - vat inclusive amount received 1200

materials - vat inclusive price paid 600


vat due flat rate 114

normal vat due 100.00

scaredpassenger
Posts: 5
Joined: Tue Nov 14, 2017 11:04 am

Re: questions from a flat rate VAT self employed guy

Postby scaredpassenger » Tue Nov 21, 2017 3:54 pm

yeah, I've actually discussed this all with my wife last night and it may be more beneficial for me at this time to come off the flat VAT completely as now probably 80% of my customers are normally not vat registered so it just makes my price to them higher

i only registered initially as i purchased a new van and it made sense, and i also did 99% of my workl at that time as a subcontractor to vat registered companies only, now that isnt the case anymore

thanks for your inputs


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