Why do buisness owners go on about claiming back VAT?

[Chatter Gear]

Business owners are always saying and boasting about being able to claim back the VAT because they are VAT registered but when you claim back VAT it just goes to the VAT man????/

So there is no financial gain???

 

[ryedale]

The Vat you can claim back from your purchases is deducted from the Vat your customers pay you and the difference is the amount of Vat that has to go to the Vatman

 

[Chatter Gear]

So lets say I spend £1000 on Google Ad Words and claim back £200 in VAT. And then I also charge £400 VAT to my customers on £2000 worth of services. The difference is £200. The VAT I charge to my customers goes to the VAT man and I keep claim back £200 from my Google Ad Words spend?

So everything goes to the VAT man but I can claim back and keep VAT on expenses such as marketing etc??? Its just what I charge my customers the VAT man keeps?

 

[Scalloway]

If you are on the standard VAT scheme you do a VAT return every quarter. You put in the total VAT you have charged on your sales in that quarter and the total VAT you have been charged on purchases. The net difference is paid or refunded by HMRC.

There is no financial gain as you are just acting as an unpaid tax collector.

 

[ryedale]

Well there is a financial gain depending on your situation

We've recently gone VAT Registered - nearly all of our clients are VAT Registered so are quite happy with having an extra 20% to pay on their invoices as they can claim that back. We still get the original amount in that we would have got pre registration and can now claim back the VAT that we are paying out every month.

 

[KM-Tiger]

So there is no financial gain???

There can be.

It's not uncommon in the early days of a company, before it is profitable, for it to pay more VAT than it charges. In those circumstances you do get a refund paid into your bank account.

If that applies to you expect HMRC to make some enquiries (they will probably phone you) before making the payment, as this is a common type of fraud.

 

[andygambles]

There can be.

It's not uncommon in the early days of a company, before it is profitable, for it to pay more VAT than it charges. In those circumstances you do get a refund paid into your bank account.

If that applies to you expect HMRC to make some enquiries (they will probably phone you) before making the payment, as this is a common type of fraud.

You are only claiming back VAT you have paid to the supplier so there is no financial gain.

You can make a gain if you use the Flat Rate scheme and have very low expenses.

 

[ryedale]

It depends how you define 'financial gain'

I've been paying supplier x £500 a month for the last 8 years, now after going VAT registered I get £100 of that back so although I'm not being given more actual money, it means I'm paying less out each year so that's a financial improvement !

 

[David Griffiths]

It depends how you define 'financial gain'

I've been paying supplier x £500 a month for the last 8 years, now after going VAT registered I get £100 of that back so although I'm not being given more actual money, it means I'm paying less out each year so that's a financial improvement !

Which rather begs the question as to why you didn't register 8 years ago, given that you said above that most of your customers are VAT registered.

You could look at your situation as removal of an unnecessary financial loss.

 

[ryedale]

Because the business has evolved over the last couple of years to take on more staff, larger clients and bigger contracts with VAT registered businesses. It wasn't something I wanted to rush into doing until I was confident that the rapid expansion was sustainable

 

[Chatter Gear]

OK so to clarify in my case my only expense really is digital marketing and I will be charged VAT. Expenses - basically none. Average charge to a customer is £100.

It sounds like there is no point, in my case anyway to register for VAT off my own back as turnover is less than 40k

 

[sskimins]

For me I like to claim VAT back, as majority product I sell is zero rate, but I purchased product cost a lot on VAT, so I like to claim VAT and improve my cash flow.

 

[Jeff FV]

OK so to clarify in my case my only expense really is digital marketing and I will be charged VAT. Expenses - basically none. Average charge to a customer is £100.

It sounds like there is no point, in my case anyway to register for VAT off my own back as turnover is less than 40k

In simplistic terms, if you sell mainly to the general public you will be better off not being VAT registered, if you are mainly selling to other VAT registered businesses you will be better off being VAT registered.

 

[kulture]

To add a complication to Jeff's simplistic and generally correct answer. If you mainly sell zero rated items (i.e. children's clothes or books) then you are also better off VAT registered. It is these little things that mean getting an accountant pays.

 

[sskimins]

If you

To add a complication to Jeff's simplistic and generally correct answer. If you mainly sell zero rated items (i.e. children's clothes or books) then you are also better off VAT registered. It is these little things that mean getting an accountant pays.

Unfortunately I do accounts myself.

 

[MyAccountantOnline]

If you are on the standard VAT scheme you do a VAT return every quarter. You put in the total VAT you have charged on your sales in that quarter and the total VAT you have been charged on purchases. The net difference is paid or refunded by HMRC.

There is no financial gain as you are just acting as an unpaid tax collector.

I disagree.

If you add VAT to your current charges you do gain by becoming VAT registered.

You benefit by being able to recover VAT on your costs.