Vat question

[georgegeo]

VAT newbie question

Ok so i understand when i meet a specific target i have to charge VAT to customer...so I collect that and i pay it to the government
so whatever money i got for VAT from customer i give it to HMRC...net effect is 0

But i am also able to claim the VAT back from my purchases?
for some reason i see it as just gaining money from this, when making purchase...

what am i missing

 

[Newchodge]

If, in any rolling12 month period you reach the VAT threshold you MUST register for VAT. You can register for VAT before then if you choose to do so.

When you are registered for VAT you MUST charge all your customers VAT (usually at 20%)..

If you buy something for the business that includes VAT you can reclaim that VAT from the government.

You MUST pay to the government all the VAT that you have charged to customers.

I suggest you talk to your accountant.

 

[georgegeo]

Ok lets say i charge my customers as you said 20%...then i give that to the government.


But when i get money back from my purchases...where does that go? its like i gain money if that doesn't go anywhere

 

[paulears]

Forget this giving and taking thing. If you sell something, you add 20% tax to it and charge the customer the total. When you get that money, it's not yours, you just collected it. When you buy something, your supplier adds tax to the agreed price, and you have to pay the total. All you have is a total of money you should pass onto the government and a total of money that they owe you. The usual situation is that you owe them more than they owe you, so you pay the difference each quarter to them. However - if you bought lots of stuff, but sold little - they'd owe you more than you owe them, and they give it back.

VAT is just shuffling money around until it gets to somebody who is not registered for VAT - normally a consumer. At that point, the Government get and keep the money. In real terms it's not really even 'money' just a liability, that usually evens out.

In simple terms, you pay VAT more than claim it back, because the VAT on cost price is less than VAT on retail price - you are paying the difference. So it doesn't make you 20% more expensive as many think, because if your suppliers are VAT registered too, it's a difference only.

People always talk about claiming back, but that's the wrong way to imagine it. It is input tax and output tax - and the difference between the two. Worst case is where you buy from a non-VAT registered supplier. THEN you do have a 20% extra to add on to your price.

 

[UKSBD]

You fill in a VAT Return once a quarter

Basically (a bit more to it than this)

1. You fill in a box saying how much VAT is due on things you sold

2. You fill in a box saying how much VAT you paid on things you bought

The system calculates the difference between the 2

If you charged more VAT than you paid - You have to pay it to HMRC
If you paid more VAT than you charged - They pay it back to you

All a bit simplistic, but that's the basics of it

 

[Dave Boatman]

what am i missing

You are assuming that you can add 20% to your current prices without it affecting sales.

 

[georgegeo]

Ok i put it in my head like this now

"Whatever VAT i received i need to give it to HMRC"

"Whatever VAT i paid i need it back from HMRC"

So received - paid = amount to be paid to hmrc

unless the example mentioned above where sales are lower.....


in any way i understand it better now thanks!


I thought u pay all the VAT from the customer to the HMRC, but thats not the case, u first deduct the VAT paid

 

[UKSBD]

Ok i put it in my head like this now

"Whatever VAT i received i need to give it to HMRC"

"Whatever VAT i paid i need it back from HMRC"

thats all basically

thanks

yeah, but you don't pay what you received and then get back what you paid.

It calculates it for you and then lets you know if you have to pay any or whether you receive any.

If you have a DD set up they just either take it from your bank or pay it in to your bank.

Edit to add: there's a bit more to it than that, but it's basically how it works

 

[japancool]

I thought u pay all the VAT from the customer to the HMRC, but thats not the case, u first deduct the VAT paid

Are you VAT registered?

 

[georgegeo]

not yet!

 

[DontAsk]

If you keep your prices the same, you will lose money.


If you add 20% to your prices you will make money, if you buy from VAT registered business, but you might lose customers.

 

[Deleted member 335660]

Ok i put it in my head like this now

"Whatever VAT i received i need to give it to HMRC"

"Whatever VAT i paid i need it back from HMRC"

So received - paid = amount to be paid to hmrc

unless the example mentioned above where sales are lower.....


in any way i understand it better now thanks!


I thought u pay all the VAT from the customer to the HMRC, but thats not the case, u first deduct the VAT paid

Yes, that is why it is called Value Added Tax, you pay the tax on the value you have added to the cost price.

If you buy something for £10 the supplier will charge you £10+£2 VAt. If you add £15 to sell the item at £25 then you will sell it for £25x 20% =£30. You collect £5 from customer, deduct the £2 you have already paid and give HMRC the remaining £3

 

[JEREMY HAWKE]

Remember this you are acting as a vat collector for the revenue . So you are rewarded with the ability to claim on your business purchases .

 

[japancool]

not yet!

If you are not VAT registered, you do not charge VAT and you do not claim it back.

 

[Talay]

Jeez, don't they cover VAT in business 101 ?

From day one, price as if you are charging VAT but son't show it on your invoices. Them, if you cross the VAT threshold, it won't put you out of business.

 

[MyAccountantOnline]

Remember this you are acting as a vat collector for the revenue . So you are rewarded with the ability to claim on your business purchases .

That's the best explanation

 

[MyAccountantOnline]

VAT newbie question

Ok so i understand when i meet a specific target i have to charge VAT to customer...so I collect that and i pay it to the government
so whatever money i got for VAT from customer i give it to HMRC...net effect is 0

But i am also able to claim the VAT back from my purchases?
for some reason i see it as just gaining money from this, when making purchase...

what am i missing

Just to complicate matters that's assuming you don't use the Flat rate scheme. If you use that you charge 20% VAT on your sales, dont claim VAT on your costs and pay to HMRC a fixed rate of your VAT inclusive sales depending on your business.

 

[WaveJumper]

You may wish to pay a visit here and take a look at some of the links I would also suggest if your at and above the VAT threshold now it maybe time to seek out a local accountant to ensure you are on the right path with your accounting systems it could save you a lot of heartache up the road.

Sending a VAT Return

How to do a VAT Return, pay your VAT bill, correct errors in your VAT Return, what to do if you're late with your return or payment.

www.gov.uk

 

[paulears]

With making tax digital, if you are really accurate with your account keeping the return is easy, but stupid things happen, like you get invoices with VAT @ 20% clearly shown, but then you notice their VAT number is from a different country - like Southern Ireland, so you cannot claim the VAT back in the UK system. It's easy to make this mistake as so many British companies are now really foreign, but a few of my German suppliers have a UK VAT number, so you can claim these.

 

[DefinitelyMaybeUK]

but then you notice their VAT number is from a different country

The correct thing here is that any supplier outside the UK shouldn't be charging you VAT in the first place The importing courier/agent may charge you UK VAT, but then you can claim that back as normal or it may even be postponed if you supplied them your EORI number.

 

[paulears]

Ha! Lots of suppliers overseas just don't want the hassle of not charging their VAT to foreign customers, so live with it, or don't get the goods. Some put on a GB VAT number and this one got me a few times when I discovered it was MY VAT number. There is a note:
Comments:

Note:If no tax is charged and your tax identification number is displayed, then this is either an exempt or a reverse charge transaction


Reverse charge supply - customer to self assess VAT GB9041987XX

http://www.adobe.com/support/service/

EUSS17: No VAT liability in Seller's country under Article 44 of EC Directive 2006/112.

I'm pretty sure this means that no UK VAT has been paid so I cannot claim it back in the usual way. However, I think that I really should pay the VAT myself, as if it an import, then claim it back. as that equates to £0 that's a lot of faffing about. I wouldn't even know how to actually do that in the software. I suppose there is a way, but I'll carry on just not claiming any VAT.

 

[lesvatadvice]

When you import goods from outside the UK, PVA (Postponed VAT Accounting), like the Reverse Charge applies. You receive a statement from HMRC telling you how much VAT is due, which is your output tax. And then, subject to the usual input tax rules, you claim it back.
It may be a NIL effect for you, but there are a number of situations where it is not. For example, if you import goods for the purpose of business entertainment, when you cannot claim the VAT back.

 

[paulears]

That's how I thought it worked, but I've had a number of packages where I didn't get the usual request for Fedex/DHL/UPS to collect the VAT - they just got delivered with no VAT paid by me - it gets very confusing, so the system I'm using is the one where I pay VAT when it's charged and then it gets recovered, but if I don't pay it, I just leave it. The net result is the same?

 

[DefinitelyMaybeUK]

but if I don't pay it, I just leave it. The net result is the same?

Yes, but it seems you're meant to still account for it as covered before:

Import VAT, or not Import VAT, that is a very good question

This may seem a silly question, but the recent chages to how VAT is handled coming from China is confusing me from the accounts perspective. On the old system, I would pay DHL, UPS, Parcelforce etc the VAT they charged based on the declarations. Then I'd enter this is the accounts as a VAT...

www.ukbusinessforums.co.uk

as per:

Completing your VAT Return to account for import VAT

Find out how to complete your VAT Return to account for import VAT if you're using postponed VAT accounting.

www.gov.uk

their VAT number is from a different country - like Southern Ireland, so you cannot claim the VAT back in the UK system

Ha! Lots of suppliers overseas just don't want the hassle of not charging their VAT to foreign customers,

That's fine, as long as you're aware some suppliers are in effect over charging you (unnecessarily) and you are not going to be able to reclaim their charged "VAT" and are you'll still be liable for VAT being charged on import by UK customs etc (even if it is postponed) I was just trying to steer the OP towards what should be the process