VAT question

[EternalOptimist]

A mate of mine has set up a ltd and the accountant has advised him not to get VAT registered, presumably because his projected income will be low.

I never heard of this before, does anyone know anything about this, what are the rules ????

[wonderwaif]

From HMRC Site:

Do I have to register for VAT?
If you are in business and your taxable turnover, not just your profit, goes over the registration threshold you become a ‘taxable person’. You must then register for VAT. If you don’t register at the correct time you could be fined.

The supplement to Notice 700/1 Should I be registered for VAT? sets out the current and past registration thresholds.

You must register for VAT if:

at the end of any month the total value of the taxable supplies you have made in the past twelve months or less is more than the current threshold - £61,000 and
at any time you have reasonable grounds to expect that the value of your taxable supplies will be more than the current registration threshold - £61,000 - in the next thirty days alone.

Google broke EO?

[_V_]

From the 1st April 07 the threshold is £64K

[Kyajae]

A mate of mine has set up a ltd and the accountant has advised him not to get VAT registered, presumably because his projected income will be low.

I never heard of this before, does anyone know anything about this, what are the rules ????

The accountant is right - avoid it. You will have to register for VAT if your earning go over a certain limit. While they're not, putting on VAT could hike up your rate to beyond that which companies are prepared to pay.

Plus you have another layer of paperwork to attend to and the VAT man is not a nice man if you screw up.

Don't do it unless you really have to.

[meridian]

A mate of mine has set up a ltd and the accountant has advised him not to get VAT registered, presumably because his projected income will be low.

I never heard of this before, does anyone know anything about this, what are the rules ????

It depends on his circumstances.
Generally, if he's a business-to-business contractor where his sales are generated from personal effort (as opposed to sales of goods) then he's better off being registered to take advantage of the flat rate scheme.
If he's selling goods to businesses then he's better off being registered to be able to claim input credits, and the businesses he sells to can claim back the vat he charges.
If, however, he's selling goods from personal effort to the general public (e.g. an artist or craftsman) then he's better off not registering, as he has no or little input tax to claim back and he can keep his prices lower than a vat registered business.
YMMV though - some folk prefer not to be registered in any case just to reduce the paperwork and keep under the radar that little bit more.

[gingerjedi]

The accountant is right - avoid it. You will have to register for VAT if your earning go over a certain limit. While they're not, putting on VAT could hike up your rate to beyond that which companies are prepared to pay.

Plus you have another layer of paperwork to attend to and the VAT man is not a nice man if you screw up.

Don't do it unless you really have to.

My accountant advised me to register for VAT to take advantage of the flat rate scheme, bill for the full amount pay 13% and pocket the rest.

I know nothing about VAT or running a Ltd yet as I have only just started so I'm only going on his advice.

[EternalOptimist]

My accountant advised me to register for VAT to take advantage of the flat rate scheme, bill for the full amount pay 13% and pocket the rest.

I know nothing about VAT or running a Ltd yet as I have only just started so I'm only going on his advice.

Dont get involved in the flat rate scheme ginger. The 13 % applies to the bill + the vat

NOT just the bill

so the flat rate vat on £1000 is £152.75 , not £130

although you make a profit of £20 ,you lose the chance to claim expenses

[Swamp Thing]

Dont get involved in the flat rate scheme ginger. The 13 % applies to the bill + the vat

NOT just the bill

so the flat rate vat on £1000 is £152.75 , not £130

although you make a profit of £20 ,you lose the chance to claim expenses

Hang on EO. Let’s say a contractor’s company annual revenue is £100,000. He’s on the FRS at 13%. Surely this is worth registering on the FRS for? The sums would be:

£100,000 x 17.5% = £17,500.
But the FRS % is 13%.
The contractor pays VAT of (£100,000 + £17,500) x 13% = £15,275.
So the contractor pockets (£17,500 - £15,275) = £2,225.

Surely this must be worth the effort? For admin all I do is keep spreadsheet records of my invoices for each quarterly VAT return. The records form the basis of my online submission to HMRC, and I pass the hard copy on to my accountant. This is not a lot of hassle for £2K…

[EternalOptimist]

Hang on EO. Let’s say a contractor’s company annual revenue is £100,000. He’s on the FRS at 13%. Surely this is worth registering on the FRS for? The sums would be:

£100,000 x 17.5% = £17,500.
But the FRS % is 13%.
The contractor pays VAT of (£100,000 + £17,500) x 13% = £15,275.
So the contractor pockets (£17,500 - £15,275) = £2,225.

Surely this must be worth the effort? For admin all I do is keep spreadsheet records of my invoices for each quarterly VAT return. The records form the basis of my online submission to HMRC, and I pass the hard copy on to my accountant. This is not a lot of hassle for £2K…

Agreed

but its very easy to rack up more than £2k if you go for expenses

hotels, books, training, hardware and software etc

Also, many people make the mistake of paying 13% excluding the vat element

[Swamp Thing]

Agreed

but its very easy to rack up more than £2k if you go for expenses

hotels, books, training, hardware and software etc

Also, many people make the mistake of paying 13% excluding the vat element

But only if you frequently purchase items above the £2K limit each time (the £2K does not work in aggregate). How many of us are actually in that position? Surely not many. In which case FRS has its advantages. I agree, the contractor must make sure he's appying the FRS % against the revenue figure inclusive of standard rate VAT. But we're all intelligent people on this board, aren't we?