VAT Help needed

[barny1976]

Hi

I am a new user and am looking for some advice on VAT as I am getting more an more confused and concerend the more I read on HMRC etc.

My wife is setting up as a chocolatier and intends to make and sell handmade belgian chocolates and truffles. My question is this, should she be charging VAT when she sells? She is not expecting to turn over more than £10k per year and was not intending to VAT register, so if she does not does it mean that she doesn't have to charge?

If anyone could help I would be extremely grateful as our so called accountant has been anything but helpful on this issue.

Regards

Andrew

 

[CassioAcc]

Hi Andrew,

You do not have to register if your turnover is under 67K. If you are not registered for VAT then you cannot charge VAT.

Hope that helps

 

[dp0848]

Hi Andrew

As her turnover is below the £67k registration threshold she does not need to register and must not charge VAT on her sales.

David.

 

[dp0848]

You beat me to it this time Aaron. Your getting faster in your old age.

 

[CassioAcc]

Its the caffeine !!

 

[barny1976]

That is a great relief guys as I had been telling her that from day one, but then got a niggling doubt when somebody challenged me on it the other day. I have to say, I think I might have to sack the accountant, he did come free from the bank though, and was about 20 years old mind!

In theory that places us at an advantage over our competitors though doesn't it? i.e. those over 67k turnover who have to charge VAT, or do they they get concessions?

Thank you for your help. I have bookmarked this site for future reference, a great find.

 

[KM-Tiger]

..... as our so called accountant has been anything but helpful on this issue.

Perhaps now would be the time to change to one that does offer sound advice to a startup business.

To whom will your wife be selling these chocolates? Consumers or VAT registered businesses?

 

[dp0848]

That is a great relief guys as I had been telling her that from day one, but then got a niggling doubt when somebody challenged me on it the other day. I have to say, I think I might have to sack the accountant, he did come free from the bank though, and was about 20 years old mind!

In theory that places us at an advantage over our competitors though doesn't it? i.e. those over 67k turnover who have to charge VAT, or do they they get concessions?

Thank you for your help. I have bookmarked this site for future reference, a great find.

Yes, it gives you an advantage if you are selling to consumers.

No concessions for the others I'm afraid - HMRC don't give anything away.

 

[CassioAcc]

As you are selling to the public then you can be more competitive on your sales price (as VAT registered business customers will be able to claim back the VAT).

A VAT registered business however will be able to claim back VAT on purchases.

If your accountant could not answer this, then I suspect you are not getting a great service.

 

[AnnaF]

Hi Barny

People over the threshold who charge VAT are able to claim back VAT on purchases.

Example
You charge customer 100 plus VAT at 15% - the amount charged is 115.
You owe HMRC the 15.
You buy materials for 50 plus VAT at 15% - the amount you pay is 57.50
You can reclaim the 7.50 VAT you paid against the 15 you owe - so now you owe HMRC 7.50.

But really unless you are at the threshold it is probably math you don't want to do

Cheers
AnnaF

 

[barny1976]

We will be selling to both joe bloggs through trade fairs etc, but also to businesses who will stock our products and corporate clients, (restaurants etc). Does this cause us or them a VAT headache?

Yes, the meeting we had was a free half hour consultation that came with the opening of our business account at barclays and suffice to say I was not impressed, particularly as I seemd to know more about the benefits and tax positions of sole trader status and Limited Co status than he did. I have complained to the bank who tell me that they will follow it up with the firm, which I doubt they will.

 

[dp0848]

Andrew,

Your accountant is truly shocking. Your questions on VAT and sole trader v. limited company are about as basic as they get for an experienced accountant. Probably time to move on to a new one. There are plenty of good accountants who post on this forum. Have a look round at other posts, pick three or four of the accounts who post regularly and PM them for quotes. Don't just go on price though. The relationship with your accountant is very important. You need to feel comfortable with the person your dealing with.

If you'd like a quote from us just drop either me or Jenni a PM.

David.

 

[CassioAcc]

If you are selling to VAT registered businesses then you might want to think about registering as you will be able to claim it back on your expenses.

You need to look at your business plan and see if there is any benefit in this (and the additional admin)

 

[KM-Tiger]

We will be selling to both joe bloggs through trade fairs etc, but also to businesses who will stock our products and corporate clients, (restaurants etc). Does this cause us or them a VAT headache?

No, because any VAT registered businesses won't care whether you charge VAT or not. Your cost to them of your goods will be the net (ie exc VAT) price.

Sometimes small businesses below the VAT threshold voluntarily register for VAT as it can be to their financial advantage, particularly if using the flat-rate scheme. The calculation is not straightforward, and in your case will depend on the mix of consumer/business sales, as it's usually where sales are mainly to VAT registered businesses that it is worthwhile. And the effect of increasing your prices to consumers would need to be taken into account.

Something to discuss with a proper accountant!

 

[dp0848]

In deciding whether or not to register you should also take into account monies spent on capital items. If you had to buy a lot of expensive equipment to set up then it may be worth registering in order to reclaim the VAT on those items.

You need to sit down with a spreadsheet and work through all of the various scenarios to see which one is most beneficial to you. Or better still sit down with an accountant and do the number crunching.

 

[dp0848]

(and the additional admin)

Aaron make a good point here Andrew. The VAT admin. can be a real headache.

 

[barny1976]

If you are selling to VAT registered businesses then you might want to think about registering as you will be able to claim it back on your expenses.

We will be selling to a number of VAT registered businesses as she already has contracts lined up to supply, but how does that allow us to claim back the VAT we charge? I thought we could only claim back the VAT we pay if we are registered. I am probably being stupid here but VAT just confuses me!!!

 

[dp0848]

We will be selling to a number of VAT registered businesses as she already has contracts lined up to supply, but how does that allow us to claim back the VAT we charge? I thought we could only claim back the VAT we pay if we are registered. I am probably being stupid here but VAT just confuses me!!!

If you are registered you must add VAT to your prices and you can claim back the VAT you pay to your suppliers.

If you are not registered then you must not charge VAT to your customers and cannot claim back VAT paid to your suppliers.

 

[CassioAcc]

The suggestion is that you might want to register for VAT if you are selling to VAT registered businesses as this will allow you to claim back any VAT on your purchases thus reducing your costs.

You do not claim back VAT you charge on Sales. The Customer pays this to you and you pay this over to HMRC.

 

[elaine@cheapaccounting]

You are just an unpaid tax collector.

Also have a look at the special schemes to make life easier - but if this is a new business you might want to see how things go and then decide to register later.

Takes a bit of pressure off until you are up and running.

Good luck

 

[KM-Tiger]

..... I thought we could only claim back the VAT we pay if we are registered.

Correct. You can voluntarily register, even if below the threshold.

But only do it if it's going to be worthwhile financially.

My personal opinion is that the 'admin' burden of VAT is overblown. Set up your bookkeeping in software and VAT is a doddle, and receiving the refunds during your startup phase a pleasure.

However if your bookkeeping style is going to be stuff all the receipts into a carrier bag, it will be a burden.

 

[barny1976]

Thanks people, my mind is clear now, great site this

 

[elaine@cheapaccounting]

Also bear in mind this:

As soon as you register you will be able to claim some vat back on items prior to registration as follows:

• for goods: you can reclaim VAT up to three years before you registered for VAT
• for services: you can reclaim VAT up to six months before you registered for VAT

So make sure that you keep all vat receipts, invoices etc.

And here is the criteria to meet to claim back vat:

• were bought by you as the 'person' who is now registered for VAT
• are for your VATable business purposes, eg they do not relate to any exempt items that you sell
• are still held by you or they have been used to make other goods you still hold

So if you had large equipment purchases you can still claim back if you register later.