85k threshold VAT

[Mozz01]

My brother started a small restarraunt late last year, I expected it to bomb very quickly but surprisingly to me at least, he's doing good.

I know this probably a very straightforward answer, but if his turnover is under 85k he doesn't have to pay VAT?

I ask as he will be very close, he's turning over 6/8k a month, and he's a bit reckless sometimes, he wouldn't deliberately avoid taxes etc but he genuinely might not be aware he needs to be putting a % aside for VAT as he's plowing anything left after running costs into the buisness, new equipment etc.

He's a LTD company if that has any bearing on the VAT question?

I know he has an accountant handling wage slips etc so hopefully is being advised correctly re Tax/VAT , I'm reluctant to ask him directly for now as we have a volatile relationship sometines and I don't want to seem like I'm undermining) criticising him.

 

[Heyes]

Below is a useful cut-and-paste...

Businesses registered for VAT must charge VAT on the goods and services they supply, and pay the VAT they have charged to HM Revenue & Customs (HMRC).

They can also claim back any VAT they have paid on their business expenses.

This turnover threshold is measured in a rolling 12-month period, rather than a fixed period like the tax year. It could be any period of 12 whole months.

Unregistered businesses whose turnover is close to the registration limit should keep an eye on this.

There are strict deadlines for submitting the registration and charging VAT, once you have passed the turnover threshold.

Source: https://blog.shorts.uk.com/what-is-vat

 

[Scalloway]

He only needs to start putting money aside for VAT when he breaks the £85,000 barrier.

Having a limited company makes no difference.

Catering is a difficult business when it comes to VAT. You have to pay over 1/6th of your takings and can recover very little. Customers are unable to reclaim the VAT they pay so you can't put up the prices.

There are two choices. Either keep turnover low and stay below the limit or have a quick expansion to compensate to having to pay over a percentage of your turnover.

 

[Mozz01]

He only needs to start putting money aside for VAT when he breaks the £85,000 barrier.

Having a limited company makes no difference.

Catering is a difficult business when it comes to VAT. You have to pay over 1/6th of your takings and can recover very little. Customers are unable to reclaim the VAT they pay so you can't put up the prices.

There are two choices. Either keep turnover low and stay below the limit or have a quick expansion to compensate to having to pay over a percentage of your turnover.

So hypothetically, if he turned over 90k in a year, would he pay 20% of 90k or 20% of 5k?

 

[Scalloway]

It would be 1/6th of 5k.

5/6 of £5,000 is £4,167
20% of £4,167 is £833

 

[Mozz01]

It would be 1/6th of 5k.

5/6 of £5,000 is £4,167
20% of £4,167 is £833

Ok, many thanks, I had read it was 20%.

 

[WaveJumper]

Welcome to the UKBF - some useful reading for you:

Register for VAT

How to register for VAT, change your details, cancel your registration, register for VAT in EU countries.

www.gov.uk

 

[Scalloway]

VAT of 20% added to sales. To get the VAT figure from the gross amount you take 1/6th as my calculation shows.

 

[Heyes]

So hypothetically, if he turned over 90k in a year, would he pay 20% of 90k or 20% of 5k?

Once registered, VAT is due on all future sales from the date of registration.

So, he either raises his prices by an appropriate amount, or if they remain the same the required percentage of it must be paid to HMRC.

For example...

If the current price of a meal is £100, and he wants to increase it to cover the VAT, he'll need to add £20 so the customer will pay £120.

If he keeps the price as it is and the customer pays £100, £16.67 will be due to HMRC.

 

[pentel]

So hypothetically, if he turned over 90k in a year, would he pay 20% of 90k or 20% of 5k?

1/6th of 90k. It is on the full turnover, not the excess above 85k.

1/6th of £90k is £15,000 so 15k to pay to HMRC.

Less any VAT paid on purchases including most capital items

It would be 1/6th of 5k.

5/6 of £5,000 is £4,167
20% of £4,167 is £833

This is very wrong.

 

[JEREMY HAWKE]

Yes I'm confused as hell too by what's going on here tonight
The business will have pay vat on the whole turnover not a certain amount above the threshold unless there is an exception for foodies

 

[Mozz01]

Once registered, VAT is due on all future sales from the date of registration.

So, he either raises his prices by an appropriate amount, or if they remain the same the required percentage of it must be paid to HMRC.

Ahhh, so going forward, once registered, in the next rolling 12 months if he turned over 100k he would be liable for 20% if 100k?

I guess it pays to stay under the threshold, unless you can go over by a large number.

 

[DWS]

Once registered you pay VAT on all your sales you do not have to pay on sales before the registration date.

 

[JEREMY HAWKE]

Many Thanks that was my confusion the thread is only concerning the registration financial year and not every year . Hence my expression of dismay ??

 

[japancool]

So hypothetically, if he turned over 90k in a year, would he pay 20% of 90k or 20% of 5k?

It would be 1/6th of all sales *from the date of VAT registration*.

So in the year after he registered for VAT, if he turned over 90k, he would pay 1/6th of 90k.

 

[Mozz01]

Yes I'm confused as hell too by what's going on here tonight
The business will have pay vat on the whole turnover not a certain amount above the threshold unless there is an exception for f

It would be 1/6th of all sales *from the date of VAT registration*.

So in the year after he registered for VAT, if he turned over 90k, he would pay 1/6th of 90k.

Thanks
Doesn't seem much insentive to go over then, unless you go over by a huge amount

 

[Heyes]

Ahhh, so going forward, once registered, in the next rolling 12 months if he turned over 100k he would be liable for 20% if 100k?

I guess it pays to stay under the threshold, unless you can go over by a large number.

To confirm earlier posts: once registered 'rolling period' doesn't apply. VAT is due on all future (not pre-registration) sales.

With your quoted figures...

On £100k turnover, £16,670 would be due to HMRC.

As regards staying under the limit, my advice is to not try to... and instead operate as effectively as possible, knowing that if the business is even half decent it'll hit the threshold at some point anyway.

 

[japancool]

Well, unless he can quickly go over, or is planning to go over £102,000.

 

[Mozz01]

Many thanks everyone, I think I've got it.

I'll try and broach the subject with him next time I see him, hopefully he's aware, his freind and accountant hopefully have explained all this, main thing is at present moment in time he's not doing anything wrong.

 

[Heyes]

This is very wrong.

In referring to:
'So hypothetically, if he turned over 90k in a year, would he pay 20% of 90k or 20% of 5k?'

...I think the Scalloway (who knows his stuff) post, in suggesting £5k, was simply misunderstood, and that he was referring solely to the current situation...

Where his sales are £85k and so he registers, and for the remainder of that financial year does another £5k - for an annual total of £90k.

 

[DontAsk]

Ahhh, so going forward, once registered, in the next rolling 12 months if he turned over 100k he would be liable for 20% if 100k?.

You are not reading what you have been told. It is NOT 20%

 

[Heyes]

if the business is even half decent it'll hit the threshold at some point anyway.

That threshold hasn't changed since 2017, and isn't due to do so until 2024.

So five years of normal inflation plus the recent/current stuff is likely to lead to an increase in those required to register.

 

[Mozz01]

You are not reading what you have been told. It is NOT 20%

Ok, 1/6 th

 

[Mozz01]

Ok, 1/6 th

But, the clarity I was looking for wasn't the actual %, rather the turnover, or specifically at which point it applied

 

[Heyes]

Ok, 1/6 th

VAT Calculator | Contractor UK

www.contractoruk.com

 

[Newchodge]

But, the clarity I was looking for wasn't the actual %, rather the turnover, or specifically at which point it applied

When 12 month rolling turnover hits 85,000 registration MUST happen. Once registered every sale must include a 20% VAT charge and that amount (less any VAT paid out) MUST be paid to HMRC every quarter.

 

[Heyes]

But, the clarity I was looking for wasn't the actual %, rather the turnover, or specifically at which point it applied

Yes, in my own initial reply, I'd inadvertently forgotten to include a simple 'yes'. My apologies to you.

And genuine credit to you for considering the commercial welfare of your brother.

Those of us who can be 'a bit reckless sometimes' need such minding.

 

[matlob]

You are quoting figures he'll need to pay each year, but he can offset a lot of the vat from his purchases.

Also may be worth looking into Flat Vat Rate as that is only 12.5% but nothing can be claimed on purchases under 2k.

 

[pentel]

That threshold hasn't changed since 2017, and isn't due to do so until 2024.

It would not surprise me if there is no increase for quite a while. IHT threshold hasn't increased since 2009

 

[UK Contractor Accountant]

VAT registration thresholds​

Country	VAT threshold
Austria	€35,000
Belgium	€25,000
Bulgaria	Nil
Croatia	HRK 300,000
Cyprus	€15,600
Czech Republic	CZK 1 million
Denmark	DKK 50,000
Estonia	€40,000
Finland	€15,000
France	Goods €85,800; Services €34,400
Germany	€22,000
Greece	€10,000
Hungary	HUF 12 million
Ireland	Goods €75,000; Services €37,500
Italy	€65,000
Latvia	€40,000
Lithuania	€55,000
Luxembourg	€35,000
Malta	€35,000, €24,000 or €14,000
Netherlands	€20,000
Norway (non-EU)	NOK 50,000
Poland	PLN 200,000
Portugal	€12,500
Romania	ROL 330,000
Slovakia	€49,790
Slovenia	€50,000
Spain	Nil
Sweden	SEK 30,000
Switzerland (non-EU)	CHF 100,000
United Kingdom (non-EU)	£85,000

 

[DWS]

VAT registration thresholds​

Country	VAT threshold
Austria	€35,000
Belgium	€25,000
Bulgaria	Nil
Croatia	HRK 300,000
Cyprus	€15,600
Czech Republic	CZK 1 million
Denmark	DKK 50,000
Estonia	€40,000
Finland	€15,000
France	Goods €85,800; Services €34,400
Germany	€22,000
Greece	€10,000
Hungary	HUF 12 million
Ireland	Goods €75,000; Services €37,500
Italy	€65,000
Latvia	€40,000
Lithuania	€55,000
Luxembourg	€35,000
Malta	€35,000, €24,000 or €14,000
Netherlands	€20,000
Norway (non-EU)	NOK 50,000
Poland	PLN 200,000
Portugal	€12,500
Romania	ROL 330,000
Slovakia	€49,790
Slovenia	€50,000
Spain	Nil
Sweden	SEK 30,000
Switzerland (non-EU)	CHF 100,000
United Kingdom (non-EU)	£85,000

There has been plenty of talk in recent years that the VAT threshold here will be reduced to bring us in line with other countries and also to reduce the unfair advantage that non-registered businesses have over registered ones with prices, whether that actually happens with everything else going on with the economy, who knows

 

[WaveJumper]

Ahhh, so going forward, once registered, in the next rolling 12 months if he turned over 100k he would be liable for 20% if 100k?

I guess it pays to stay under the threshold, unless you can go over by a large number.

And for me there lies the issue with our OP. it always surprises me with a business of this sort of turnover (and I am not trying to be discourteous) the lack of understanding of whats going on ie once your VAT registered your just a tax collector for HMRC, you're collecting in their 20% (or whatever rate is applicable to you) and giving it to them every quarter (soon to become monthly) the amount you hand over will depend on what you can claim back from your expenses (speak to your accountant) Now the real issue here is going to be (and mentioned above) has your brothers business planned for / accounted for adding 20% VAT to its prices and still be competitive or is he going to have to absorb some of this into his profits ......... thats the question?

How does he plan to grow and expand his business for the future?

 

[JEREMY HAWKE]

Something has just sparked in my head . (may need a rest now)

Our favourite eating house here reduced their opening time quite a bit since start up
We are always moaning about the stupid opening times . Well if the vat rules are that harsh then it makes sense now

 

[WaveJumper]

Something has just sparked in my head . (may need a rest now)

Our favourite eating house here reduced their opening time quite a bit since start up
We are always moaning about the stupid opening times . Well if the vat rules are that harsh then it makes sense now

Vat could be the reason ? (see what i did there) and now you have sparked off a conversation here about a restaurant we frequent that seems to be closed now more times than its open we thought it was a staffing issue but perhaps not

 

[DWS]

I can’t see how any successful restaurant once they have been trading for a year would not breach the VAT threshold, turnover would only have to be just over £1,600 a week,
That’s not a lot of covers!

 

[JEREMY HAWKE]

I can’t see how any successful restaurant once they have been trading for a year would not breach the VAT threshold, turnover would only have to be just over £1,600 a week,
That’s not a lot of covers!

Oh mine would never hit the vat threshold I would be so crap at running a restaurant

 

[GLAbusiness]

Just to be clear. The threshold is used to determine if he needs to register for VAT. Once registered he must pay HMRC their share whatever the turnover. So if after registration he has a bad year and only turns over £50k he still has to account for VAT on these sales.