VAT Registration
Discussion
I think I'll need to be registering for VAT now, could someone please explain what is involved?
Although I'm nowhere near the threshold, I think it will be beneficial. The majority of my clients are businesses who are VAT registered themselves.
I have to pay VAT on all of the servers I buy so obviously need to be able to claim that back. What's the longest time ago I can claim for VAT on items I paid for?
What about items which are partly for business use and partly for private use?
What costs/paperwork is involved, being a soletrader and having other committments I don't want lots and lots of hassle involved. I don't make a vast quanityt of sales per month.
How do I go about doing it? What are the Pros and Cons?
Although I'm nowhere near the threshold, I think it will be beneficial. The majority of my clients are businesses who are VAT registered themselves.
I have to pay VAT on all of the servers I buy so obviously need to be able to claim that back. What's the longest time ago I can claim for VAT on items I paid for?
What about items which are partly for business use and partly for private use?
What costs/paperwork is involved, being a soletrader and having other committments I don't want lots and lots of hassle involved. I don't make a vast quanityt of sales per month.
How do I go about doing it? What are the Pros and Cons?
Have you got an accountant?
These are the types of things clients usually need to discuss with their advisors.
If you bought items before you became registered for VAT and these items were still in use or in stock and unsold at the date you became registered, you can claim back the VAT on those items. The downside is that you have to charge VAT on those items if and when you sell them at a later date. There is no time limit for claiming back such items.
If items purchased are used partly for business and partly privately, then a reasonable apportionment of the Input VAT is acceptable. The crunch question is "what is reasonable"?
For private petrol, the VAT authorities prefer you to use a flat rate Fuel Scale Charge sytem to "unclaim" the VAT on private use petrol.
Keeping VAT records can be tedious but, to be honest, when you are running a business you should be keeping these records anyway - especially under the Inland Revenue self assessment regulations.
If your business is small, an old style "Cash Book" type summary may be adequate or, if used to spreadsheets, a spreadsheet equivalent. For VAT purposes you MUST retain all original paperwork - sales invoices, purchase and expense invoices etc.
The VAT registration process usually begins by ordering a VAT 1 Registration Form.
A lot of free information on VAT matters can now be obtained from the Customs and Excise web sie - www.hmce.gov.uk
>> Edited by Eric Mc on Sunday 13th June 12:10
These are the types of things clients usually need to discuss with their advisors.
If you bought items before you became registered for VAT and these items were still in use or in stock and unsold at the date you became registered, you can claim back the VAT on those items. The downside is that you have to charge VAT on those items if and when you sell them at a later date. There is no time limit for claiming back such items.
If items purchased are used partly for business and partly privately, then a reasonable apportionment of the Input VAT is acceptable. The crunch question is "what is reasonable"?
For private petrol, the VAT authorities prefer you to use a flat rate Fuel Scale Charge sytem to "unclaim" the VAT on private use petrol.
Keeping VAT records can be tedious but, to be honest, when you are running a business you should be keeping these records anyway - especially under the Inland Revenue self assessment regulations.
If your business is small, an old style "Cash Book" type summary may be adequate or, if used to spreadsheets, a spreadsheet equivalent. For VAT purposes you MUST retain all original paperwork - sales invoices, purchase and expense invoices etc.
The VAT registration process usually begins by ordering a VAT 1 Registration Form.
A lot of free information on VAT matters can now be obtained from the Customs and Excise web sie - www.hmce.gov.uk
>> Edited by Eric Mc on Sunday 13th June 12:10
Thanks Eric.
I don't have an accountant partly because at this point it's simple enough to not need one and also because the cost of employing one would be large in terms of my turnover and profit.
I'm expecting to be buying less than 5 items per year, and selling it off in perhaps 50 or so sales.
I don't have an accountant partly because at this point it's simple enough to not need one and also because the cost of employing one would be large in terms of my turnover and profit.
I'm expecting to be buying less than 5 items per year, and selling it off in perhaps 50 or so sales.
If you're a sole trader running a straightforward business, then even if you are VAT-registered you can use a book-keeper rather than a fully qualified acccountant. I pay £200pa but I've known him for years. I'd suggest you use one that's been recommended though. After a year or so of registration you'll probably get a visit from HM Customs & Excise and it's nice to have everything tidy and squeaky-clean.
One thorn about VAT registration is that you can't simply claim back all the VAT on petrol. To claim it back you have to 'pay' a flat rate (as mentioned above) and if you don't do much mileage then it's not worth claiming. G Brown wins again.
My business is a simple one too, and all VAT means on a day to day basis is simply keeping two extra columns the cashbook: one for input and one for output (which is accountant-speak for money coming in and money going out).
One thorn about VAT registration is that you can't simply claim back all the VAT on petrol. To claim it back you have to 'pay' a flat rate (as mentioned above) and if you don't do much mileage then it's not worth claiming. G Brown wins again.
My business is a simple one too, and all VAT means on a day to day basis is simply keeping two extra columns the cashbook: one for input and one for output (which is accountant-speak for money coming in and money going out).
Don't get your "Inputs" and "Outputs" confused. For a start, accountants or book-keepers do not, as a rule, use these terms. We prefer to use terms such as Sales/Income or Costs/Putchases/Expenditure. It's the VAT authorities who use the terms "Output" and "Inputs" and they are precisely the opposite as described by Simpo Two -
Outputs - these are your sales or the fees raised for work done. The VAT arising on Outputs is called "Output VAT" and is the VAT you owe to Customs and Excise.
Inputs - these are your business costs. The VAT on these costs is called "Input VAT" and this is the VAT you can claim back from Customs and Excise.
Good book-keepers are quite rare and I have yet to come across any book-keepers who are well versed in the subtleties of Self Assessment and business tax.
Outputs - these are your sales or the fees raised for work done. The VAT arising on Outputs is called "Output VAT" and is the VAT you owe to Customs and Excise.
Inputs - these are your business costs. The VAT on these costs is called "Input VAT" and this is the VAT you can claim back from Customs and Excise.
Good book-keepers are quite rare and I have yet to come across any book-keepers who are well versed in the subtleties of Self Assessment and business tax.
Eric Mc said:
It's the VAT authorities who use the terms "Output" and "Inputs" and they are precisely the opposite as described by Simpo Two
Indeed - I thought it was wrong but never said 'respectively' so left it. Personally I think of it in terms of 'VAT in' and 'VAT out': it helps an accounting numpty like me to understand it!
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