Starting a sole tradership - VAT ?

This only applies to Limited Companies.

"bornfree" wrote

Eh? Why do you think that?

If anyone can help me with these queries, I would be very grateful. Thank you.

If you are turning over less than when registration is compulsory, you need to decide whether it is in your interest to register voluntarily.

This is a serious business decision, not just a convenience issue.

Generally it depends on whether the majority of your trade is with customers who are themselves registered or not. If not, then don't, if so then do.

Why? If you are selling mainly to the general public, registering would force you to charge VAT on everything you sell, making your products more expensive, so you would be less competitive.

If you are selling to people or companies who are registered, then any VAT you charge is "invisible" to them, since they simply reclaim it. If you are not registered, your prices include the hidden VAT of your raw materials (which you can't reclaim), and your customers can't reclaim it either because you can't give tham VAT invoices. This would make you less competitive.

To illustrate how important it is to get this right (as Ronald has pointed out.to you):

Supppose you are a hairdresser turning over £66,999 a year and are not VAT Registered. Sell one more pennyworth of shampoo and you pay the VAT man £9,979 reducing your income to £57,020. In order to get back to the position you were already at, you have to increase your sales to £78,725, pay the VAT man £11,725 and take home...erm... £67,000...

Of course it may be that you sell to a mix of customers, some registered for VAT, some not. There are often very good commercial reasons for having two or more entirely separate businesses - *NOT* to avoid paying VAT I hasten to add because that would be fraud, but for entirely justifiable reasons that have nothing to do with VAT whatsoever.

:)

pennyworth? why not poundworth?

On £66,999 and eleven three?

Ok. Thank you.

What about income tax? It's not the same thing as VAT is it? Would I have to pay it?

No.

Only if you make a profit. And don't forget National Insurance.

Ok this is starting to make sense. Thank you everyone for helping me understand.

I know what National Insurance contributions are. As for income tax.. well the business I am starting has very low running costs. Profit is inevitable; therefore so is income tax.

Is there a short course, class or book I can study to teach me about income tax and NI contributions? I am quite ignorant on this subject and everyone I ask in a socially gives me hazy answers. Further, I really want to avoid any press by the inland revenue because it is terribly overwritten, and doesn't much help me.

Below the threshold, registration for VAT is voluntary.

Why would you want to volunteer to be registered? Well, then you can claim back VAT on whatever you spend for the business! This is on top of being able to claim back some income tax.

BUT: you then have to charge VAT to your customers, so you're not as competitive. AND: you have to do a lot more paperwork!

More seriously, you may be required to pay over your VAT receipts before your customers have paid you, creating a minor cashflow problem.

You anyway should not charge VAT unless you are registered and can show a registration number (allowing your business customers to claim back their VAT paid to you).

So if your turnover was increased to £66,999.01 you still wouldn't have to register.

I meant to write "£66,999 *nineteen* and eleven three", which rounds downwards for VAT purposes but sell so much as a pennyworth and you are three farthings over.

Do you accompany the Queen and Sheik Mohammed on Saturday?

Where?

But the answer is "no"

Ah well, if what you mean to write and what you actually write ain't the same, how can you expect us poor mortals to keep up?

It doesn't "round downwards for VAT purposes". There is no £66,999 limit. The limit is £67,000. You don't round £66,999.99 down to £69,999 and then see that it is less than £67k. £66,999.99 is

*already* less than £67k.

I'm not sure, though, whether the test at the £67k limit is one of "greater than" or of "greater than or equal to". If the turnover were

*exactly* £67k (to the penny) would you have to register or not? It depends on whether the rules are phrased in terms of "exceeeds" or "does not exceed".

Mind you, nineteen and eleven three is meaningless these days and has first to be converted into real money. Since a farthing is about a fifth of a new penny, that figure is rather nearer 100p than

99p, so presumably "£66,999 nineteen and eleven three" would have to be treated as exactly £67k. Depending on which of the above tests applies, you might *already* have to register even before you sell the extra penn'orth of shampoo.

< snip >

That'll be a Scottish farthing, then....?

In England, we were charged 9.6 farthings for each new penny :-(((

Nae doot. I suppose to you lot every Scotting thing is a far thing. Of course every thing in Scotland is far. Far better.

You were robbed. Couldn't have happened North of the border.

I did use the correct factors, but somehow managed to drop a factor of 2 in the multiplying out. Sorry. Glad to see someone's paying attention.

£67k or above.

I thought we were talking about today and not a long time ago - hence the £67k.

"Scotting"...? Never heard that before, so I googled and found....

Is this what you meant...?

:-)))