Re: Vat treatment of a high cost start-up (not for profit)

Sorry all

The link is

Initially the moeny will come from Govt. as a grant and also some club subscriptions. Costs / Outlay in year 1 exceed £100k.No profit.

In year 2 we 'might' have subscriptions that merely cover bandwidth provision , or we might have higher subscriptions that include ISP services (and possibly more). I am confident that either way there is a taxable supply. I am confident that either way there will be more subscribers year 2 than

2. However some of our members are concerned that if we register in year 1 (which is clearly advantageous) but then fail to hit vat registration threshold in year 2 then C&E will come gunning for us.

Thanks

-- John Owens

Fax 44 1509 89 08 22

That's up the chute.

At any stage you can register/be already registered for VAT. If you look like you will hit the VAT threshold in any quarter you *must* register for VAT.

There is no compulsion to de - register if your turnover falls below the VAT threshold, if that's what you mean, and it could still be advantageous for you to remain VAT registered, even.

You might have some difficulty with HMC&E if you start choosing to register /de-register as the wind blows, claiming back your input VAT on your purchases (of substantial hardware items, say) in the quarters you are VAT registered but not chargeing VAT in the quarters you are not VAT registered.

I don't know the law on this but I'm 100% sure HMC&E have it covered. :-)

DG

When you deregister, you have to pay the VAT on any equipment you have at the time back to them.

That won't be a problem. The only problem is if you register, and then fail to make any taxable supplies at all.

They probably won't let that happen, as they will generally look for evidence that you are making taxable supplies before you get your registration.

"Jonathan Bryce" wrote

VAT on what amount? Eg suppose you bought a computer 4 years ago for £1,000+VAT, ie paid £1,175 and reclaimed £175 input VAT at the time. Say it is now worth "around" £100 (if you're lucky!).

Do you need to pay back the full £175 input VAT when you de-register? Or just 17.5% of "about" £100 (ie perhaps only £17.50 paid back to HMC&E)? If so, how do you determine the current value - or does HMC&E set the amount?

If the former (ie if de-registration requires the full original input VAT to be repaid), then shouldn't you simply SELL the equipment immediately before de-registration - charging VAT of course, eg £100+VAT=£117.50?

Couldn't you buy the equipment yourself, privately, from your business? In which case, you could give yourself a "good deal" (charge a small amount for it)??

You would need to pay £14.89 to HMCE. [The £100 almost certainly includes VAT] You get the value by looking around to see what other people are charging for second hand computers.

Of course if that was the only piece of equipment you had, you wouldn't need to worry as it is below the limit where they start worrying about it.

"John Blake" wrote

If most of the "startup costs" are for equipment that is likely to still be "on hand" in a few months' time, why don't they:

This way, they'll still recover the VAT outlay on startup costs (albeit slightly later, but the lost interest on later cashflow could be made up by higher "margin" on early subs, which don't include VAT) and early subscribers can still pay less than if they registered immediately.

Or am I missing something?

"Jonathan Bryce" wrote

Interesting!

What happens if you find that traders are charging (say) £85.11+VAT=£100, but that private sellers are charging (say) £90 with no VAT payable (they are not VAT-registered), then what VAT would be due? [3 possibilities: (a) £14.89; (b) £15.75; (c) £13.40.]

Is it any different if private sellers are charging (say) just £75 (with shops still charging £100 incl.VAT) ? [The 3 possibilities are now: (a) £14.89; (b) £13.13; (c) £11.17.]

"Peter Saxton" wrote

Well, OK then - why would people pay more to a car dealer for an equivalent second-hand car, than they do from a private seller? [Check out all the car price guides!]

"Ronald Raygun" wrote

From what Robert says in his post :- ============================================ "Robert Killington" wrote > The value you take is the VAT exclusive value. So a private > seller's value would be VAT exclusive, but it is unlikely > that that would be acceptable to Customs & Excise. ============================================ ... it looks like it should be (a) & (b), yes?

No. If a private seller charges £90, and a private buyer pays £90, that fixes the VAT-exclusive value at £76.60, not £90. The private seller is recovering the same fraction of the VAT he paid for it, as he is recovering of the original VAT-exclusive price paid. Just because the private seller isn't VAT-registered doesn't mean he can't charge VAT, he just can't issue a VAT receipt.

I'm not sure what Robert is on about. In establishing what the true market value of a piece of 2nd hand kit is, you have to take what the typical buyer is prepared to pay for it. The typical buyer of a 2nd hand computer is more likely to be a private individual than a VAT-registered business, and therefore the value would tend to be *expressed in* VAT-inclusive terms. The man in the street might be prepared to pay £100 for it. Then £100 is the VAT-inclusive value, and this then fixes its VAT-exclusive value at £85.11. This is the value you "take" for the purpose of noting in your accounts if you are VAT-registered.

Turning to the seller, if the seller is VAT-registered, he would take the buyer's £100, keep the £85.11, and remit the £14.89 to HMCE, which is fair enough. If he originally paid £1000+VAT for it when it was new, and he reclaimed the VAT from HMCE, he now disposes of it for £85.11+VAT and gives the VAT to HMCE. What's fair is profit is fair in loss.

Now, if the seller is not VAT-registered, he keeps the whole £100, but it is still an item on which the seller, when he acquired it, will have paid VAT, either explicitly or implicitly, so although he now has £100 of real cash, all of which he is allowed to keep, it is still really £85.11 of the computer's intrinsic value, plus £14.89 of VAT. He may have originally paid £1000+£175 for it, and have written off 91.5% of its value while using it, so by selling it for £100, he is in effect recovering 8.5% not only of the £1000 original VAT-exclusive value, but also of the £175 VAT he originally paid.