Understanding VAT

[billett05]

Hi,

I can understand the basics of VAT. If you buy you cvan claim and if you sell you have to pay etc...

What I want to know is how is the best way to work out what you owe each period.

Do your deduct the VAT you want to claim back from the money you pay or is this claimed seperatly?

I'm forcasting and looking at profit margins and need to ensure that when I sell I can gain profit without having to wait for a VAT payout (if thats how it works).

[paultnl]

use an account package like Kashflow and it does it all for you. If you take up the free trial you can run some dummy transactions and see how your prices work out.

[paulears]

The VAT return uses standard headings. Here's an example - assuming you do it online, it does the maths for you - you enter your figures into the boxes next to the numbers.
PERIOD 3 - up to DECEMBER 31st submitted 1/1/10
VAT DUE IN THIS PERIOD ON SALES AND OTHER OUTPUTS 1 £
VAT DUE IN THIS PERIOD ON ACQUISITIONS FROM OTHER EEC MEMBER STATES 2 £
TOTAL VAT DUE (THE SUM OF BOXES 1 AND 2) 3 £
VAT RECLAIMED ON PURCHASES AND OTHER INPUTS (INCLUDING ACQUISITIONS FROM THE EEC) 4 £
NET VAT TO BE PAID TO CUSTOMS OR RECLAIMED BY YOU (DIFFERENCE BETWEEN BOXES 3 AND 4) 5 £
TOTAL VALUE OF SALES AND ALL OTHER OUTPUTS EXCLUDING ANY VAT. INCLUDE YOUR BOX 8 FIGURE 6 £
TOTAL VALUE OF PURCHASES AND ALL OTHER INPUTS EXCLUDING ANY VAT INCLUDE YOUR BOX 9 FIGURE 7 £
TOTAL VALUE OF ALL SUPPLIES OF GOODS AND RELATED COSTS, EXCLUDING ANY VAT, TO OTHER MEMBER STATES 8 £
TOTAL VALUE OF ACQUISTIONS OF GOODS AND RELATED COSTS EXCLUDING ANY VAT, FROM OTHER MEMBER STATES 9 £
TO SUMMARISE - YOU WILL PAY customs £

If you look at your records, do you have the figures to fill in these boxes? If so, you can soon work out if they pay you or you pay them.

[KM-Tiger]

I'm forcasting and looking at profit margins and need to ensure that when I sell I can gain profit without having to wait for a VAT payout (if thats how it works).

It sounds like you are confusing profit with cashflow.

Profit is net income less net expenditure, where net means net of VAT.

When VAT is paid to you, when you pay it to your suppliers, and when you pay the difference to HMRC is a cashflow issue for which you must plan, but it has no effect on profit.

[billett05]

Paul/KM, Thank you both, im starting to understand it more now, and looking into it further yes profit was not the word I should have used.

Nows the time to start looking at being VAT registered

[paulears]

When I registered, I was under the threshold, but for me, it's worked well - but as most of my clients are VAT registered, adding the VAT to their invoices made no difference - they are only interested in the net price - the VAT isn't relevant. It's actually swung the other way for me - I no longer use a couple of suppliers because they are NOT VAT registered - buying from somebody a little more expensive in total works better is there is VAT in the price. Watch that very often things you buy on maybe ebay, can be more expensive in reality.

As an example, I bought quite a few packs of self-adhesive specialist paper via ebay sellers - but I now buy it from an alternate supplier who sells on ebay, at a higher price, because they supply a VAT invoice - and as it's now 20%, the VAT-less price I really pay make a difference.

However, when I did my calculations before deciding, it was a close thing (at the time), but has turned out for me, to have been a very good move.