A couple of quick questions regarding Taxable turnover (VAT)

Discussion in 'General Business Forum' started by Talton, Aug 28, 2018.

  1. Talton

    Talton UKBF Newcomer Free Member

    1 0
    Hi,

    First post on here so be gentle.

    I've been self employed since 2014, I started with around £900 to invest in an idea I had, which has since been successful, but recently I've been watching my income and it's drawing nearer and nearer to £85,000, I believe it's currently sitting at £79,900.

    In the past few weeks I've had a million questions running through my head, will going over kill me, how do I manage this, if I manage it incorrectly will I get into trouble, this list goes on!

    I'll voice a few questions/concerns I have below and if anyone could comment that would be excellent.
    • I currently take income as a whole, for example, I'll take £10 from a customer, from that I'll use £2 for postage, £2 for fees, £2 for items stock price, then take £4 profit.

      What from that is taxable? Is it just the profit, or the whole £10 from the customer?

    • If/when I do go over the £85k do I pay VAT on money taken after that, so if I take £85k + £1k I'd pay £200 VAT.
      or is 20% of the £85k I've taken in over the past year instantly needed to pay up?

    • If the answer to the above question is 20% on the £85k , can I back date VAT paid for services/products?
    I've got a million questions running through my head but it's surprisingly difficuly to put them to paper.

    Anyway, any wisdom you can bestow upon me would be greatly appreciated, any questions feel free to ask.

    Apologies if this post is in the wrong section.

    - Martin
     
    Posted: Aug 28, 2018 By: Talton Member since: Aug 28, 2018
    #1
  2. Newchodge

    Newchodge UKBF Big Shot Free Member

    11,907 3,085
    First of all you need to differentiate between VAT and tax.

    Your first bullet point - only profit is subject to tax and you should declare your income and allowable expenses on your self assessment to arrive at the tax you need to pay. This has nothing to do with VAT.

    You must register for VAT if, in any 12 month rolling period your turnover reaches the VAT threshold. Not any tax year, so you need to do an assessment of the previous 12 month turnover every month.

    Turnover includes all income in the 12 months that is for non-VAT exempt goods. Some goods and services are VAT exempt, ignore those, some are zero-rated for VAT, include those.
    When you reach the threshold you must charge appropriate VAT on everything you sell. When you register you will get a VAT number, but this can take weeks. If you supply only consumers, not businesses, I would recommend increasing your prices by 20% immediately, but you can't call the increase VAt until you have your registration number. For business customers advise that you are in the process of registering, and re-invoice once you have your registration nuimber, showing VAT.
     
    Posted: Aug 28, 2018 By: Newchodge Member since: Nov 8, 2012
    #2
  3. Mr D

    Mr D UKBF Legend Free Member

    14,258 1,555
    Once you register for VAT that's when you collect VAT on all sales. 1/6th of what the buyer pays is the VAT element then for 20% items.
    Every quarter you add up the VAT you have paid out for your business (purchase of stock & services for instance) and knock that off from the VAT you have collected from customers. The difference is what you pay to HMRC.
    For instance say you sell mobile phones. An item with 20% VAT. Sell for £600, you get £500 of that and the VAT is £100. Its not on sales above £85k its on all sales from point of registration onwards.

    Some businesses work to keep below the threshold. Shut down the business, take a holiday for a few weeks or months then back to normal.
    Once you reach the threshold in a rolling 12 month period you register.

    The 20% VAT is added tax. 1/6th of what the buyer pays because you add 20% on to price you want.
    So in theory a £10 item becomes a £12 item so you can keep getting the £10. With the £2 extra being VAT.
    You don't strictly have to - its possible to keep your prices the same and you pay the 1/6th VAT on the total sale out of your money. Not recommended but it can be done by those with sufficient profit to cover.
     
    Posted: Aug 28, 2018 By: Mr D Member since: Feb 12, 2017
    #3
  4. Raw Rob

    Raw Rob UKBF Enthusiast Free Member

    1,116 234
    You don't need to increase your prices by 20% to continue making the same profit, because you can take in to consideration all the VAT you will claim back. Assuming it is a product, and assuming everything you buy has 20% VAT on, you only need to increase your prices by about 20% of the value of your profit to keep making the same margin. This is especially important to keep in mind if raising your prices by 20% is going to make you uncompetitive.
     
    Posted: Aug 28, 2018 By: Raw Rob Member since: Aug 1, 2009
    #4