Should I register for VAT

Hi I run a kitchen supply & fitting business, (Bean going for 2 years) my turnover this year is going to be around £50,000 I pay roughly £500 VAT on a kitchen, would I be able to claim that back if registered or is it not that simple? thanks for any help

 

[elaine@cheapaccounting]

you have to charge vat as well.

I assume that most of your customers would be non vat reg eg house holders.

It makes your work 20% more expensive! Would you lose work because of it?

Read this ...

http://www.franklyaccounts.co.uk/glossaryvathelp.php

 

[MyAccountantOnline]

Hi I run a kitchen supply & fitting business, (Bean going for 2 years) my turnover this year is going to be around £50,000 I pay roughly £500 VAT on a kitchen, would I be able to claim that back if registered or is it not that simple? thanks for any help

Yes you can reclaim VAT on the kitchens you buy and other business expenses if you make a voluntary VAT registration but you then also have to charge VAT on your sales. This is fine for people who sell to other VAT registered businesses but when you sell to the public/customers who aren't VAT registered you become 17.5% (soon to be 20%) more expensive unless you absorb the VAT and cut your profit margins.

 

All my customers are house holders so would be non Vat registered. lets say I sell them a kitchen that costs me £5000 (£4000 plus £1000 Vat) for £5500 and I charge them £1000 for the fitting. the customer gets a kitchen supplied and fitted for £6500 that would make me £1500.

If I was registered for vat can I claim back the £1000 Vat on the kitchen or is that not how it works? If I could claim it back I could put my install price down 20% to £800 + vat so the customer would not be paying anymore.

 

[MyAccountantOnline]

All my customers are house holders so would be non Vat registered. lets say I sell them a kitchen that costs me £5000 (£4000 plus £1000 Vat) for £5500 and I charge them £1000 for the fitting. the customer gets a kitchen supplied and fitted for £6500 that would make me £1500.

If I was registered for vat can I claim back the £1000 Vat on the kitchen or is that not how it works? If I could claim it back I could put my install price down 20% to £800 + vat so the customer would not be paying anymore.

If you were VAT registered and bought a kitchen for £5,000 incl VAT you could reclaim VAT of £744.68 (17.5% of £5,000).

If you sold that for £6,500 you'd have to add VAT of £1,137.50 ie £6,500 x 17.5%, or treat the £6,500 as including VAT which would be £968.08 - either way you loose out as you pay over more in VAT than you can recover.

 

[David Richards]

All my customers are house holders so would be non Vat registered. lets say I sell them a kitchen that costs me £5000 (£4000 plus £1000 Vat) for £5500 and I charge them £1000 for the fitting. the customer gets a kitchen supplied and fitted for £6500 that would make me £1500.

If I was registered for vat can I claim back the £1000 Vat on the kitchen or is that not how it works? If I could claim it back I could put my install price down 20% to £800 + vat so the customer would not be paying anymore.

If you're VAT registered, yes you get to claim VAT back on the things you buy but you have to charge VAT on everything.

(Calculation removed as Nicola beat me to it!)

As ever, speak to your accountant to make sure that you're working in the most tax-efficient way.

 

[spidersong]

Is any of your work on new build properties?

If so then some of the work on those jobs you may be able to do without charging VAT. If you do work on a new build then you wouldn't charge VAT on the units you fit, but would still be able to claim the VAT back on your costs.

Appliances you fit as part of the build wouldn't be covered in this, you'd still need to account for the VAT on those.

So unless you have a high proportion of new build work, you're unlikely to be any better off registering for VAT.

 

[elaine@cheapaccounting]

From 04/01/11 when vat is 20%

Kitchen costs £4000 (vat is £800 on this and can be claimed back)

You sell for £6500

vat is £1300

Your turnover is £5200 net

you pay £1300 less £800 = £500 in vat to HMRC

Your profit is £5200 - £4000 = £1200

 

Thanks for all the help looks like it not worth registering for vat then.

 

[Interimsolutions]

Hi,

I would suggest you continue as you are until you reach the threshold where you have to be VAT registered. Your not losing out even at the moment as you are obviously offsetting your whole purchase price at the end of the year against any tax you owe. If you were dealing with trade customers it would help you to reclaim the VAT if there is any left to re-claim by the time you have charged your VAT inclusive of you labour. If you slash your price to accomadate the VAT you would be losing. So my advice would be to continue as you are until you have to register. Keep things simple. Also, I guess at the moment your accounting fees are minimal as you only need to submit your end of year returns, if you would register for VAT now, you would incur a quaterly charge by your accountants to submit your VAT return on top of your annual fees.

 

[mr. mischief]

I have various clients in this position. My advice to them is consistent - keep your sales under £70k unless you are confident you can zoom through to £85k or more without too much difficulty. This is even more relevant to businesses which are all cash dealing with the public, but with high gross margin - for example dance classes where the main costs are hall rental (no VAT) and 40 pence per mile motoring (VAT on 11 pence or so of it).

So my message to those sorts of businesses is "Would you like to hand over £10k extra to the country each year by going from £69k sales to £71k?"

Even the most patriotic and public-spirited of us is going to find that one hard to swallow. Personally I think tax thresholds like this are plain daft - ditto the stamp duty ones. As my examples show, the £70k VAT threshhold results in a small but measurable reduction in UK GDP compared to the situation if the VAT was phased in in stages, say between £70k and £100k.

 

[GGGSurrey]

keep your sales under £70k unless you are confident you can zoom through to £85k or more without too much difficulty.

What's the relevance of the £85k figure?

 

[mr. mischief]

The precise figure varies from business to business. But if we take the example of the dance school and VAT at 20%.

Suppose it makes cash sales of £78k, its output tax to pay is £13k. I am saying that its taxable inputs are around £20k per year with the VAT, so it gets to claim back £3.3k and is now just under £10k worse off for VAT, but has made an extra £8k of sales for an extra £1k or so of costs - overall it is £3k worse off.

Now suppose it gets to £85k, the sums are now - compared to sales of £69.9k -

Extra sales income 15
Extra costs incurred -2
Output tax to pay -14.2
Input tax to claim +3.6

Better off by +2.4

For some businesses with more taxable inputs the target sales is lower than this. For others - for example accountancy practices! - it's often above £90k.

 

[Interimsolutions]

Mr Mischeif

If you are an accountant you are one of the very few straight forward ones who like to simplify things for their clients so they know exactly how to run the system as apposed to be a slave of the system.

Many accountants like to make things sound too complicated and difficult to understand so their clients think they can't do without them! This group of bean counters can only get away with it for a maximum of 2 years, as soon as their so called client networks with others and get reffered to people like yourself they start to feel as if they are in control of their business and feel as if they are running the show.