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VAT registration-is it worth doing?

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Post Wed Dec 09, 2009 12:04 am

VAT registration-is it worth doing?

Since becoming VAT registered at the pub I have lost my ingrained fear of VAT registration, and have been thinking for a while of going registered at the shop.

When I first started up I know it wouldn't have been viable, but now that my purchases are bigger, and of course, everything I buy has VAT on it, it seems to me to make sense to go registered to be able to claim the vat back.

I do realise about having to then charge VAT to my customers, but this MAY-if I am lucky- stop the high street £5 shoppers (they drive me nuts!)

Am I missing something (apart from a brain, I hear you all shout, in unison)

What I would like to know is individuals' thoughts on this.

Lorraine
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Phill Fenton

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Post Wed Dec 09, 2009 12:13 am

Yup - signmaking is mainly a business to business service. And since the majority of businesses are themselves VAT registered it makes no difference to them if you are too. A perfect example is the reflective vinyl you asked about in another thread. If you were VAT registered you could buy it in and sell it on at a small profit instead of advising your customer to buy it himself (since he was VAT registered and could claim back the VAT).

In my view - you would be better off VAT registered even if you are below the threshold that requires you to do so. If you do decide to register - investigate the flat rate scheme as this may be to your advantage.
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Post Wed Dec 09, 2009 12:19 am

Lorraine
if you gross more than 68k you must register for vat as I am sure you are aware.
in general I think you are better of registering for vat if most of your work is with other vat registered businesses. it gives you an advantage over the competition if they are not.

example
vat reg you pay £100 for material +£15 for mr Brown you sell at £200 + £30 for mr Brown, both vat figures are reclaimed by you and the purchaser,
however if you are not vat registered you pay £115 for the materials and can still only sell for a similar price so only making £85 instead of £100.

I think my sums are right, but welcome more professional opinions

Peter
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Post Wed Dec 09, 2009 12:19 am

Hi Phil, that is the way I was thinking too, I have rad about the flat rate scheme, I must read up about it again.

Cheers mate

Lorraine
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John Childs

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Post Wed Dec 09, 2009 12:20 am

I concur with my learned colleague from Livingston.
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Post Wed Dec 09, 2009 12:20 am

Sorry Peter, you were typing at the same time as me! Correct as always Sir!

Oops, and John! :lol1:

BTW, I gross much less than the threshold, but it still seems that I could be making more money, or at least claiming more back than I am at the moment.
For example, recently I had a Purchase order o t value of£800 plus VAT.
then bought the goods plus vat, but invoiced minus VAT. This has to be mad, especially as the company were obviously happy to pay the VAT. I could have been a few pounds better off, whilst the co. I supplied to were OK either way.
Last edited by Lorraine Clinch on Wed Dec 09, 2009 12:27 am, edited 1 time in total.
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Post Wed Dec 09, 2009 12:23 am

Lorraine Clinch wrote:Sorry Peter, you were typing at the same time as me! Correct as always Sir!

Oops, and John! :lol1:


lets have less of Sir, Madam
:D
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Warren Beard

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Post Wed Dec 09, 2009 12:27 am

Hi Lorraine

I decided to get vat registered in April and so far it has been a good thing, besides the £4k I got back for the last 2.5 years I have simply added the vat on to my normal price (effectively a price increase) and then the vat cancels itself out and more profit at the end of the day and yes it looks better when dealing with bigger clients, the smaller unregistered ones will have a problem but they know it is just something they have to pay so normally do (after you agree with them it's pants and could do without it :-? )

I would say go for it just to claim the last 3 years back anyway.

another best thing I did was get an accountant, saved me a few 1000 squids this year :lol1:

cheers

Warren
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Post Wed Dec 09, 2009 12:29 am

Peter Normington wrote:
Lorraine Clinch wrote:Sorry Peter, you were typing at the same time as me! Correct as always Sir!

Oops, and John! :lol1:


lets have less of Sir, Madam
:D


Have you been sneeking peeks at my New Years fancy dress outfit Peter?
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Graeme Harrold

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Post Wed Dec 09, 2009 12:30 am

Contemplating the same. Having monitored who Ive been selling to, its been 80% B2B and 20% to the public.............Only had one customer pull the "get your supplier to invoice us..." stunt.......... :lol1:
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Post Wed Dec 09, 2009 12:33 am

Hi Graeme, I've never had that (bound to now though!)

As I have just spent out a fair bit on the printers, and am going to be buying hugely expensive inks for them, plus full rolls of vinyl etc, it makes sense (I think) but am waiting to see if anyone has any minus points to add...

Must speak to my accountant Warren...I can see his office from my shop!

Lorraine
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Post Wed Dec 09, 2009 12:38 am

Warren Beard wrote:Hi Lorraine

I decided to get vat registered in April and so far it has been a good thing, besides the £4k I got back for the last 2.5 years I have simply added the vat on to my normal price (effectively a price increase) and then the vat cancels itself out and more profit at the end of the day and yes it looks better when dealing with bigger clients, the smaller unregistered ones will have a problem but they know it is just something they have to pay so normally do (after you agree with them it's pants and could do without it :-? )

I would say go for it just to claim the last 3 years back anyway.

another best thing I did was get an accountant, saved me a few 1000 squids this year :lol1:

cheers

Warren


Warren is that a recent thing? I dont see how you can claim vat back over the last three years, if you haven't also charged it?
it used to be only on purchases made in the current vat period, ie the last 12 months, if what you say is correct then it a free gift from the government!
and no company pays vat, (if they are registered)we just collect it for the exchequer, the end user, that is the private buyer, is the one that pays the tax.

Peter

Peter
Last edited by Peter Normington on Wed Dec 09, 2009 12:41 am, edited 1 time in total.
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Warren Beard

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Post Wed Dec 09, 2009 12:40 am

not to stray of topic but the accountants did save me thousands, so many things you can claim or write off (if that's what it is), last year I did a self assessment online and basically entered in Income and Expenses, got about £200 back but that's it, my accountants showed me all the stuff they did and was amazed (and very happy) by what they saved me and I was really worried about paying £650 for them to do my return, glad I took the chance :wink: :lol1: Van depreciation, work from home expenses, mileage on personal car for business use etc etc.

Anybody who doesn't have an accountant should get one.

cheers

Warren
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Warren Beard

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Post Wed Dec 09, 2009 12:42 am

Peter Normington wrote:
Warren Beard wrote:Hi Lorraine

I decided to get vat registered in April and so far it has been a good thing, besides the £4k I got back for the last 2.5 years I have simply added the vat on to my normal price (effectively a price increase) and then the vat cancels itself out and more profit at the end of the day and yes it looks better when dealing with bigger clients, the smaller unregistered ones will have a problem but they know it is just something they have to pay so normally do (after you agree with them it's pants and could do without it :-? )

I would say go for it just to claim the last 3 years back anyway.

another best thing I did was get an accountant, saved me a few 1000 squids this year :lol1:

cheers

Warren


Warren is that a recent thing? I dont see how you can claim vat back over the last three years, if you haven't also charged it?
it used to be only on purchases made in the current vat period, ie the last 12 months, if what you say is correct then it a free gift from the government!
and no company pays vat, we just collect it for the exchequer, the end user, that is the private buyer, is the one that pays the tax.

Peter

Peter


It's 3 years for equipment and machinery etc, no not for sales as you said as you did not charge it but any business purchases besides what you buy to produce jobs can be claimed. You can also claim the vat on all your current stock as this will be sold while registered.

I'm 99% sure that's correct
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Nigel Hindley

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Post Wed Dec 09, 2009 12:51 am

- Ive done this a couple of times and in the process of doing it again - yes you can claim back 3 years Vat no problem but only on goods and have the vat receipt not services and not consumables and only as long as you still have the items in your possession.

Technically however you are liable to pay vat on the last 3 years takings - its just that the VAT office never follow it up but if for any reason they did - you would have to pay it, of course you can go back and send out invoice's purely for vat.

Im just doing this for the third time at present with a wee business that was protected from vat as it was a limited company beneath the threshold, I have never been asked to pay back vat and my accountants say this is normal.
Last edited by Nigel Hindley on Wed Dec 09, 2009 12:58 am, edited 1 time in total.
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Post Wed Dec 09, 2009 12:53 am

That is how I understood it too Warren.

VAT at the pub drives me nuts, because although we claim vat on our alcohol/soft drinks etc purchases, we buy FOOD INGREDIENTS in VAT FREE, but then have to pay VAT on the sales, but can only charge what we think the customer will pay, it's not +VAT, so it feels like we are losing 15% (17.5% again soon) every time we sell a meal, or a bowl of chips, or a bag of crisps.

VAT at the shop will be so much more satisfying somehow, I think.

Lorraine
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Post Wed Dec 09, 2009 12:55 am

well if that's the case Lorraine, as Nigel and Warren point out
well worth registering just to claim back the last 3 years...
without the other advantages

Peter
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Nigel Hindley

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Post Wed Dec 09, 2009 12:57 am

Lorraine - a friend of mine has a restaurant and he has opted for the fixed rate vat which I think is around 5%? maybe 8% the vat man should have offered you this? My friend feels he scores with this rather than 15 soon to be 17.5 again.

Nigel

PS for the pub that is!
Last edited by Nigel Hindley on Wed Dec 09, 2009 12:59 am, edited 1 time in total.
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Post Wed Dec 09, 2009 12:59 am

Lorraine Clinch wrote:That is how I understood it too Warren.

VAT at the pub drives me nuts, because although we claim vat on our alcohol/soft drinks etc purchases, we buy FOOD INGREDIENTS in VAT FREE, but then have to pay VAT on the sales, but can only charge what we think the customer will pay, it's not +VAT, so it feels like we are losing 15% (17.5% again soon) every time we sell a meal, or a bowl of chips, or a bag of crisps.

VAT at the shop will be so much more satisfying somehow, I think.

Lorraine


no but it is including vat, you do account for that. on your menu you do say vat inc so the customer is aware they are paying it, and can claim it back if a business lunch or expense.

Peter
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Post Wed Dec 09, 2009 1:02 am

No Peter, we don't.

Having said that, our menu's change daily, depending on what meat and/or veg I have bought for that day.

Lorraine
Last edited by Lorraine Clinch on Wed Dec 09, 2009 1:49 am, edited 1 time in total.
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Nigel Hindley

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Post Wed Dec 09, 2009 1:05 am

I take it Lorraine the sign business is in another name or limited and thats why you dont pay or claim vat on it?
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Post Wed Dec 09, 2009 2:15 am

Hi Nigel, yes, Absolute Signs (AKA The Sign Shop-the previous owners name) i completely separate to the pub.

I really must look at the turnover for both businesses, see what they qualify for.
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John Childs

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Post Wed Dec 09, 2009 9:40 am

Lorraine,

VAT needn't be a pain. All it takes is a reasonably well set up accounting programme with separate accounts for the different types of purchase and sale. Entering figures in the correct accounts soon becomes second nature and is no problem.

That would automatically take care of your buying in some stuff free of VAT, but selling it on inclusive. That's an annoyance we all face; in my case buying in labour (wages) with no VAT, but having to charge it when we sell it.

It has another benefit to you as well, in that you can easily check the profitability of each aspect of your business.
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Post Wed Dec 09, 2009 12:51 pm

I voluntarily registered for VAT in 1988, I use Quickbooks as my accounting package and I have to say it is one of the best things I did. If you sort and run it properly it is not even a chore, just make sure the money is available to pay the treasury at the end of the quarter or they won't be able to pay mp's expenses or sub the banks.
Alan D
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Nigel Hindley

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Post Wed Dec 09, 2009 1:52 pm

Lorraine Clinch wrote:Hi Nigel, yes, Absolute Signs (AKA The Sign Shop-the previous owners name) i completely separate to the pub.

I really must look at the turnover for both businesses, see what they qualify for.


Id definitely look into the fixed rate vat thing for the pub. My Friend swear by it though he prob doesn't sell as much alcohol his turnover is in excess of £300k mind - maybe its worth splitting the business food / drink and the food side then would be 17.5% better off.

My prob (not that it is a prob) with vat is is that I'm registered for vat personally so anything I do qualifies for vat unless I register any other business interest as a limited company but then that's only for any business with a turnover of less than the threshold over that i still pay and claim vat

Nigel
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Post Fri Jan 14, 2011 9:45 pm

I'm vat registered but I'm looking into the "Flat Rate Scheme".
You can't claim the vat on your purchases except assets over £2000.00.
You still charge 20% vat on your sales.

BUT
you only pay the revenue a flat rate of 8.5%!!

What do you think of this plan?

Link:
http://customs.hmrc.gov.uk/channelsPort ... ownloadopt
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Post Fri Jan 14, 2011 9:49 pm

yes this look like a good idea and could have saved me around £1550 this quarter, however how did you get to 8.5% as I have found it hard to get the right classification as to which category I should be in. This will also make the vat return much faster to complete as I would only be paying vat on sales. Its funny you posting this as I was going through this today with my accountant.
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Post Fri Jan 14, 2011 9:52 pm

Sorry this is where I was struggling choosing the correct sector for sign making
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Phill Fenton

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Post Fri Jan 14, 2011 10:14 pm

Our rate is also 8.5%. There is no exact classification for signmakers - Look under printing and print suppliers - I'm sure that's the category we are in.

The 8.5% rate will change since the VAT rate went up to 20%. When it was 15% the flat rate scheme for signmakers was 7.5% - so I would expect the new rate to be about 9.5% now. We haven't been officially notified yet even though we are already having to charge our customers 20% VAT since 4th January
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Post Fri Jan 14, 2011 10:33 pm

Hi Phil thanks for this I was thinking I should be class as manufacturing as well and not just printing?
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Nigel Hindley

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Post Sat Jan 15, 2011 1:46 am

Phill Fenton wrote:Our rate is also 8.5%. There is no exact classification for signmakers - Look under printing and print suppliers - I'm sure that's the category we are in.

The 8.5% rate will change since the VAT rate went up to 20%. When it was 15% the flat rate scheme for signmakers was 7.5% - so I would expect the new rate to be about 9.5% now. We haven't been officially notified yet even though we are already having to charge our customers 20% VAT since 4th January


Phil what are the advantages to you of going for the fixed percentage?

Nigel
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Post Sat Jan 15, 2011 8:28 am

Manufacturing, other fabricated metal products, I think, is the category.

New (post 20% full rate) is 10.5%

For the first year you'll get a 1% discount so 9.5%

It can work out better if you have never been vat registered. A sort of half way house.

And, the advantages are in filling out the return. Two minute job.

You just pay the vat man 10.5% of your customer invoices' full total. (that is the total after 20% vat).....

e.g. £100 plus £20 vat = £120

You pay vatman £12.50 (approx), you keep the £7.50 (which will add to the company profits)

But.....you cannot claim vat against any purchases, so if you have been fully registered before, you could end up worse off slightly.

However if you buy a machine/vehicle piece of kit worth £2000 inc vat (or more) you can claim full vat back for that seperately.

Morning!
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Phill Fenton

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Post Sat Jan 15, 2011 12:42 pm

Nigel Hindley wrote:Phil what are the advantages to you of going for the fixed percentage?


Before switching to the flat rat we checked our figures based on previous months and it was clear we would be paying less tax on the flat rate system. It's dead simple. Just look at how much VAT you have paid over the last year and compare that to how much you would have paid if you had been using the flat rate scheme (Look up your turnover and multiply it by 8.5%). However, It may well be that if the new figure is 10.5% (since the rate went up to 20%) that the standard system would be better. You need to keep checking the figures.

You can elect to go back to the standard system at any time. As already stated only single purchases above £2000 can have their VAT re-claimed so that's a disadvantage. Anyone can do their maths and work out what system would result in paying less tax due to their own circumstances.
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Post Sun Jan 16, 2011 3:33 pm

Thought you might find this interesting, I think I will register even though my turnover is much less than the threshold, however I can see that quite a bit of the VAT I have paid is not reclaimable, and in particular my heating bills of which the VAT comes to over £300 for the last half of last year, not sure about my rent yet... anyway found this....

Reclaiming VAT on goods you bought before registration
You can reclaim VAT on goods you bought or imported no more than four years before you were registered for VAT if all the following are true:
the goods were bought by you as the entity that is now registered for VAT (for example, the individual, business or organisation)
the goods are for your VAT taxable business purposes, which means they must relate to VAT taxable goods or services that you supply
the goods are still held by you or they have been used to make other goods you still hold
You can't reclaim VAT on any of these goods:
goods that you've completely used up before you registered for VAT (such as petrol, electricity or gas)
goods that you have already sold or supplied before being registered, or have used to make goods you have sold or supplied before being registered
goods that relate to supplies you make that are exempt from VAT
The word 'goods' includes goods that are intended for resale, and also goods that you keep as assets, such as computer systems, shop fittings, office equipment and furniture, tills, vans and other equipment. It also covers anything else you've bought that isn't a service, so it includes consumables such as stationery.

here is the link http://www.hmrc.gov.uk/vat/start/regist ... before.htm

Think I'll employ an accountant and see what he can do
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John Gregson

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Post Sun Jan 16, 2011 3:53 pm

Think that applies to paying standard rate vat instead of the flat rate Phill has listed above.
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Post Sun Jan 16, 2011 8:23 pm

Hi John, nope it also applies to flat rate too, have a look at the link it explains it in great detail
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Warren Beard

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Post Sun Jan 16, 2011 8:31 pm

I registered after 2 years of trading and got 4K back as I had bought a van and small printer and all the other bits and pieces (oh and my cutter) That alone has got to make it worth it!
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Stuart Miller

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Post Mon Jan 17, 2011 11:39 am

The main benefits of being voluntarily VAT registered is to claim tax back on purchases. This is beneficial when buying large items or when you are just starting and your income may be less than outgoings so you can get VAT back.

Once you are up and running and generally your income is more than purchases then the financial advantages are not that obvious.

It is actually a misconception that if you are not VAT registered then you can sell more competitively and cheaper as you dont have to add on VAT.However your selling price needs to still include an element of VAT to compensate for the VAT you can not claim back on purchases.
So rather than looking at it that you are charging more when adding on VAT look on it that when selling to other VAT registered businesses you can offer them the Tax break.
Therefore for subcontracting to builders or commercial work it may benefit to be VAT registered as it means they can claim Tax back and therefore you can be more competitive than someone who is not registered, as well as the perception that you are a larger company.

I am used to being VAT registered and don't find the quartet tax return much hassle as long as my weekly accounts are up to date the VAT return takes me a push of a button. The only other thing which takes a little extra time in my accounting software is adjusting the Fuel Scale charge manually for my vehicle each month.
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Stephen Morriss

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Post Mon Jan 17, 2011 12:07 pm

I've been thinking about this for the last 6 months.
My wife already deals with VAT in her company so I'm not bothered about that too much and now it's 20% that's quite a bit of dead money in stocked items.

Steve

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