VAT - to register or not

If you're turnover is likely to be less than the VAT threshold, what are the pros and cons of registering anyway - apart from: Looks (slightly) more professional to be registered.

My friend says that it 'doesn't matter about reclaiming vat as what you can't claim back when not registered, is still a cost and therefore you still get it back by declaring it as a cost"

But when I play with the figures

ie assume sole-trader with taxation at flat 20%

Vat Registered Not Registered Income £100 + £17.50 £100 Costs £50 + £8.75 £58.75 Profit £50 £41.25 Less Tax £10 £8.50

Take Home £40 £32.75

it seems that you are just giving the money to the vat man. You are just inflating your costs by 17.5%, yes? Am I missing his point or am I right here?

Reply to
Kermit
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You're also inflating your price by 17.5% if you're selling to non-VAT registered people.

Jim.

Reply to
Jim Ley

It would depend whether you generally supply consumers (who can't reclaim vat) or businesses (who can).

Also not all your costs are vatable, so you can't always reclaim the vat on them - eg wages, bank charges etc

Reply to
Adrian Boliston

You are not inflating your "costs" (if by that you mean your prices) when you sell to VAT registered buyers. Whether there is a substantial base of non-registered customers who will be adversely affected is something which you should know.

Tony

Reply to
Anthony R. Gold

Sorry, to posters so far if I wasn't clear:

You are inflating the cost to you the trader by not reclaiming the vat. So, doing business un-registered for vat costs you more than being registered - ie you have less profit after tax . (Business quoted is buisness to business so vat registered suppliers and customers).

Reply to
Kermit

I find it difficult to see how a business which provides vatable products or services can *benefit* from being vat registered, as it will generally end up having to pay out more vat than it can reclaim.

Reply to
Adrian Boliston

Scripsit "Adrian Boliston"

It depends on who your customers are.

If your customers are predominantly VAT registered themselves, then you can afford just adding the VAT above the prices you would otherwise sell at. Your customers won't suffer, because they will themselves reclaim the VAT they pay to you, and which you pay back to the taxman afterwards. So in that case the VAT on your sales will have a net zero effect for you. Therefore, by registering the VAT you can reclaim for your own expenses will be pure profit.

On the other hand, if most of your customers are predominantly consumers, you will have to pay the VAT on your sales out of your own pocket, lest your customers will be hit with a real price increase. In that case you cannot possibly benefit from VAT registering, if you can avoid it.

Reply to
Henning Makholm

This is a buisness-to- business setup - all sales are to vat registerd business customers and all purchases of stock and costs such as fuel etc from business suppliers are from vat registered suppliers.

If you re-read my original question, am I PERSONALLY better off at the end of the financial year if I register for VAT, given that I can claim back input tax if I register -or I can set it all as cost if I don't.

Reply to
Kermit

One thing to consider is whether you might be forced to register halfway through a financial year - i.e. you go over the VAT threshold.

At that point, even if you have not charged VAT, you will be asked to pay VAT on your year's sales by HM Customs & Excise. In other words, you will have to go back to all your customers and ask them to cough up the VAT... they do not have to do this but you still have to pay the VAT to Customs & Excise. I know numerous self-employed people who have got into a right financial mess re this.

Reply to
John Smith

Surely not true if you opt for 'cash accounting' which most small businesses just moving over the threshold will do. With cash accounting for VAT your VAT returns relate to actual money spent and received and not to the 'tax point' on sales (or purchase) invoices.

Reply to
usenet

Not true in any case unless you have *forgotten* to register. The registration period is a rolling twelve months. If in any 12 months you exceed the rolling VAT threshold, you become registered from the first day of the second month following.

This bloke sells to VATable business so he should register for VAT ASAP because he can put up his prices by 17.5% and his customers won't care a toss.

Reply to
Troy Steadman

Bollocks. You must register when your turnover rate reaches the threshold, and this can be partway through a financial year with no danger of retrospective clawback. There are penalties if you delay registration, though.

Matti

Reply to
Matti Lamprhey

No he can't put his prices up. Instead of charging £100 per thingy as before, he now charges £100+VAT. His customers are basically blind to this VAT, but charging £100+VAT instead of £100 is not "putting his prices up", it's keeping them the same.

It's advantageous to register in his circumstances because:

(1) If to make his thingies he buys in wotsits from VAT registered suppliers, then he now becomes blind to the VAT he used to pay, so his profit margin goes up.

(2) Because his profit margin goes up, he can afford to drop his prices, which makes his business more competitive, increasing his turnover and his profit.

But if he mostly sells services, and has very little by way of purchases on which to recover VAT, then (1) and hence (2) do not apply, and there is no great advantage to registering. Neither is there a disadvantage, though, and if there's a chance he'll *have to* register at some point, it might be as well to do it early to learn the ropes with a low transaction volume than in a frenzy later on.

Reply to
Ronald Raygun

"Matti Lamprhey" wrote

;-)

After reading JS's idiotic lunacy, I was just thinking "that's bollocks!" before opening your post!!

Reply to
Tim

Scripsit Kermit

Certainly. But it wasn't your original question I tried to answer.

Reply to
Henning Makholm

Isn't "idiotic lunacy" unnecessarily tautological?

Reply to
Ronald Raygun

Scripsit Ronald Raygun

I don't know. It's pleonastically redundant, though.

Reply to
Henning Makholm

Nudge, nudge; wink, wink; say no more, if you get my drift.

Reply to
Ronald Raygun

If you don't register soon enough the VAT man can go back and clobber you for VAT to when you should have registered. It matters not that you haven't charged your customers. You will have to pay it out of your own pocket.

2nd. You cannot charge your customers VAT even on materials, if you are not registered.

Ken

Reply to
ken

"Pleonastically redundant" I had to look up and it made me chuckle but "prices" I don't need to look up:

"Money for which thing is bought or sold" (COD)

...can apply just as well to the VAT inclusive figure.

Reply to
Troy Steadman

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