Sole trader, not VAT registered - reverse charge...

[ss88]

Hi all,

Some background:

Retailer - Amazon, eBay, Shopify and a small number of B2B sales.
It's a side business, turnover over the past few years has been a maximum of £50k, down to £37k last year but there has been some growth this year so I expect the numbers will improve. Net profit generally sits around 10%.

I am a sole trader and not VAT registered. I use Freeagent for accounts and operate traditional accounting (i.e. not cash basis).

If I was VAT registered, the goods sold are a mix of zero- and standard-rated.

I am a seafarer and I claim Seafarers Earnings Deduction, so my main income is not taxed and I have my entire personal allowance available. This means I have paid no tax on my business profits as they have all been under the allowance.

I always took it as given that Amazon would charge me VAT on seller and FBA fees and that was just that. I couldn't claim it back because I'm not registered but then I wasn't charging VAT to my customers so fine, all good.

Having looked into it though, if I was VAT registered Amazon would operate a reverse charge so they wouldn't charge VAT on fees (as they are based in Luxembourg). Digging deeper, they can reverse charge for a "taxable person" (i.e. me operating a business) even if I am not VAT registered. I asked Amazon about this and after supplying some documents to confirm I am indeed trading as a business though not VAT registered, they have stopped collecting VAT on my fees and are preparing to refund me for previous years. This refund will be over £6,000.

So my issues are these:

1) This year I have made some taxable income from a temporary second employment which, along with my profits, will use up most of my allowance. This refund will therefore push me over *however* is there a way to reflect that much of this refund relates to previous years (where I still had significant personal allowance remaining)?

2) Going forward, I'm aware that the cost of services supplied by Amazon will need to be added to my sales when considering where I am in relation to the VAT registration threshold. How should I account for this? It's not true turnover obviously - do I just take my turnover over the past 12 months and add the value of services as a sense-check? I feel it may be beneficial to register soon anyway as my share of (what would be) zero-rated sales has increased significantly so the drop in profit on standard-rated goods would be offset.

Sorry for the long post but hoping someone can help. I'm generally decent with bookkeeping and staying on top of things and with such a small business I'm not sure that an accountant on an ongoing basis would be justifiable. Part of me is leaning towards engaging an accountant to sort out issue #1 and then move the business to a limited company to "start again" with this new arrangment.

 

[lesvatadvice]

Answering the VAT question.
The Amazon fees, and others, are 'reverse charge.' This is correct, since you are a UK based business. The value of reverse charge services received adds to your turnover for the purposes of registration. From the information in your post, I think you will still be below the £83k threshold.
However, you should plan ahead, anticipating when your turnover might reach £83k.
Once you are registered, you will then use the reverse charge for these fees.

I hope that helps. It looks like you will need to engage an Accountant in due course, to deal with direct tax as well as VAT. My view is that it is generally worth paying fees to avoid problems with HMRC.

 

[DontAsk]

£83k threshold.

£85k?

£83k is the threshold below which you must fall to de-register, IIRC.

 

[lesvatadvice]

£85k?

£83k is the threshold below which you must fall to de-register, IIRC.

my mistake! £85k is registration threshold.

 

[Daybooks]

If you wanted to attribute your refunded VAT to the accounting years they originated from then you would need to amend your submitted returns.
https://www.gov.uk/self-assessment-tax-returns/corrections

You would need to redo your annual accounts for those years. Your revised accounts would have to be on the accruals basis and not the cash basis as obviously the latter must reflect its timings and thus not be appropriate.

With regard to the value of supplies under the reverse charge mechanism you have probably digested the VATPOSS14700 article from HMRC.

The inclusion of these reverse charge supplies in the calculation is purely for determining VAT registration so there are no additional accounting entries to consider per se. Do remember that it is a continual rolling twelve month turnover to consider not just your twelve month accounting period; as well as a next thirty day assessment in determining requirement for registration.

A good accountant would be able assist with both the pros and cons of your resubmissions and indeed incorporation.

 

[gene-keto]

Forgive my ignorance. I would just like to ask this question:
Can a startup, not registered for VAT, claim back the VAT it pays to suppliers (eg in the first year of business) ?

 

[japancool]

Forgive my ignorance. I would just like to ask this question:
Can a startup, not registered for VAT, claim back the VAT it pays to suppliers (eg in the first year of business) ?

If you're not VAT registered, no.

After you register for VAT, you may be able to claim back VAT for any stock you still possess or for services back-dated for a period of time, subject to conditions.

VIT32000 - How to treat input tax: pre-registration, pre-incorporation and post-deregistration claims to input tax under regulation 111 - HMRC internal manual - GOV.UK

www.gov.uk

 

[gene-keto]

If you're not VAT registered, no.

After you register for VAT, you may be able to claim back VAT for any stock you still possess or for services back-dated for a period of time, subject to conditions.
....

Thank you JapanCool