I’ve messed up my VAT a little - need a steer pls.
Discussion
Guys my little enterprise post Velstar comprises of a small e-commerce biz circa £35k but growing and a range of e-commerce club / mentor / consultancy circa £60k both under one LTD.
For VAT I always thought I could split them and both be under the VAT threshold - slightly dodgy but possible.
Accountant says no and says must file immediately for VAT expect to have to recharge / repay VAT which I’m ok with.
What I’m less happy with is until I get a VAT NUMBER I have to put on every invoice I raise that I’ll be redoing the invoice plus 20% once the number arrives.
This will p
s off clients I’m sure and I’m asking if anyone’s been through this with a better solution?
Cheers
For VAT I always thought I could split them and both be under the VAT threshold - slightly dodgy but possible.
Accountant says no and says must file immediately for VAT expect to have to recharge / repay VAT which I’m ok with.
What I’m less happy with is until I get a VAT NUMBER I have to put on every invoice I raise that I’ll be redoing the invoice plus 20% once the number arrives.
This will p
s off clients I’m sure and I’m asking if anyone’s been through this with a better solution? Cheers
Given you've now found a solution, more for the benefit of others who may find this thread - you can invoice the full amount (including the VAT value) without separating the charge and VAT and make a note at the bottom of the invoice that the VAT number is pending.
Then when you get the VAT number you can reissue the invoice splitting the value between charge and VAT - thereby allowing your customers to reclaim the VAT element.
I actually thought you had to do this but the HMRC website says 'can', every day is a school day.
Then when you get the VAT number you can reissue the invoice splitting the value between charge and VAT - thereby allowing your customers to reclaim the VAT element.
HMRC said:
Accounting for VAT while you wait for your VAT number
You cannot include VAT on your invoices until you get your VAT number but you can increase your prices to account for the VAT you’ll need to pay to HMRC.
Example
On 1 May, you arrange a £100,000 contract to provide services to a new customer. You register for VAT because you know you’ll go over the threshold in the next 30 days.
Your effective date of registration is 1 May. This means you’ll need to pay VAT to HMRC on any invoices you raise from that date.
To account for the VAT you’ll need to pay, tell your customer that you’ll be adding 20% to the original contract amount of £100,000 and then raise an invoice for £120,000.
After you get your VAT number, reissue the invoice showing the full amount including the £20,000 VAT. Your customer does not need to make any extra payment but can now reclaim the additional £20,000 from HMRC on their next VAT return.
https://www.gov.uk/register-for-vat/how-register-for-vatYou cannot include VAT on your invoices until you get your VAT number but you can increase your prices to account for the VAT you’ll need to pay to HMRC.
Example
On 1 May, you arrange a £100,000 contract to provide services to a new customer. You register for VAT because you know you’ll go over the threshold in the next 30 days.
Your effective date of registration is 1 May. This means you’ll need to pay VAT to HMRC on any invoices you raise from that date.
To account for the VAT you’ll need to pay, tell your customer that you’ll be adding 20% to the original contract amount of £100,000 and then raise an invoice for £120,000.
After you get your VAT number, reissue the invoice showing the full amount including the £20,000 VAT. Your customer does not need to make any extra payment but can now reclaim the additional £20,000 from HMRC on their next VAT return.
I actually thought you had to do this but the HMRC website says 'can', every day is a school day.
sleepezy said:
https://www.gov.uk/register-for-vat/how-register-f...
I actually thought you had to do this but the HMRC website says 'can', every day is a school day.
I love PH - many thanks 🙏 I actually thought you had to do this but the HMRC website says 'can', every day is a school day.
Eric Mc said:
HMRC does not like what they call "disaggregation" which is the deliberate splitting of trading activities in order to keep each trade under the £85,000 threshold.
A retail business and a consultancy don’t overlap - what’s screwed it is my starting up a new marketing agency. Eric Mc said:
HMRC does not like what they call "disaggregation" which is the deliberate splitting of trading activities in order to keep each trade under the £85,000 threshold.
Is it possible to have two Ltd Cos that trade in completely different activities but owned/run by the same single person both under the threshold but combined would be over? Eg A tennis coach that also owns a small car wash?Eric Mc said:
That is more likely to be "allowed" but HMRC can be a bit unpredictable in this area.
There are also Corporation Tax rules regarding "associated companies" that you need to be aware of too.
If I am a client paying for services can I potentially be held liable by HMRC for colluding with or abetting disaggregation?There are also Corporation Tax rules regarding "associated companies" that you need to be aware of too.
For example, say I am having roofing works carried out by a limited company and the contractor offers to ‘help me out’ by having an identifiably discrete element of the work (ie a separate roof) carried out by another limited company (the boss is a director and I assume shareholder of both companies). The main element of the job is charged to me at £100k plus VAT and the other element is charged out at £40k with no VAT. Is that an issue just for the contractor to worry about or could it become my problem too if HMRC were to take an interest?
Eric Mc said:
HMRC does not like what they call "disaggregation" which is the deliberate splitting of trading activities in order to keep each trade under the £85,000 threshold.
Ive always felt this 85k figure is too high and creates these issues.It would be better to make it say 20k so all legitimate business is vat registered to level the playing field but still leave some wiggle room for proper small cottage industries?
robdcfc said:
Eric Mc said:
HMRC does not like what they call "disaggregation" which is the deliberate splitting of trading activities in order to keep each trade under the £85,000 threshold.
Ive always felt this 85k figure is too high and creates these issues.It would be better to make it say 20k so all legitimate business is vat registered to level the playing field but still leave some wiggle room for proper small cottage industries?
Don't forget, VAT does not just apply to businesses - charities, schools, local councils, police authorities, schools, clubs and societies etc all have to register for VAT if they breach the threshold.
StevieBee said:
I've never really understood the purpose of VAT in B2B sales. I add money to my invoice and give that money to the government. The government then gives that money back to my client. I'm sure there's a simple explanation but it has alluded me.
It's a French idea - that explains everything.Don't forget that along the chain of transactions, there will be entities and people who are not VAT registered and therefore are unable to claim back VAT they have paid - so the government gets to keep elements of the VAT along the way.
At the end of the chain is usually a non VAT registered person, so ultimately, they get to keep that VAT too.
Eric Mc said:
robdcfc said:
Eric Mc said:
HMRC does not like what they call "disaggregation" which is the deliberate splitting of trading activities in order to keep each trade under the £85,000 threshold.
Ive always felt this 85k figure is too high and creates these issues.It would be better to make it say 20k so all legitimate business is vat registered to level the playing field but still leave some wiggle room for proper small cottage industries?
Don't forget, VAT does not just apply to businesses - charities, schools, local councils, police authorities, schools, clubs and societies etc all have to register for VAT if they breach the threshold.
I have a small bodyshop which is over the threshold as Im not sure how you can run a profitable one under 85kTO??
Theres plenty of one man bands similar to myself that will state "customer purchases parts" and just book out labour to stay under the threshold.
Same with small one man band mechanics for instance they do the same to avoid vat as adding in parts would pretty much guarantee
taking you over the threshold
StevieBee said:
I've never really understood the purpose of VAT in B2B sales. I add money to my invoice and give that money to the government. The government then gives that money back to my client. I'm sure there's a simple explanation but it has alluded me.
The clue is in the name - Value Added Tax. B2B sales are generally done at profit, so there is an accrual of sticking tax every time the constituent parts of a product have their profit realised. In essence you reclaim VAT on your costs, then pay VAT as those costs are converted into things you sell, you sell them for more than your costs and HMRC pass their percentage of that profit on to the Treasury.
It's convoluted and inefficient, but there's no other practical way of taxing the creation of value. It would be a complete distortion of the market if you simply charged the VAT on the final retail transaction as it would be impossible to define the value created, let alone manage the market distortions created by value being created in different aspects of the supply chain.
It is a pretty sweet deal for the government. In a former life I worked for HM Customs and Excise as it was then and had a couple of years doing VAT inspections. I was fairly junior so only went to the smaller traders. None of them missed the opportunity to point out they were “unpaid tax collectors” and had better things to be doing.
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