Deferring payment/income

[JapanRed]

If a LTD company was in their final accounting quarter, and potentially was about to breach the £85k VAT threshold, would they be allowed to defer payments (eg ask creditors not to pay them) until the new financial year?

It seems pointless that a company would earn £85-107k as they would pay more VAT than they would earn. Eg a company earns £107k minus 20% VAT = £85,600. Would be better to just earn £84,900 surely?

Assume very little overheads with said company.

Or am I missing something?

[Phil.]

As I understand it, the VAT threshold is not dependent on payments, rather invoices. Therefore you would need to invoice your customers in the next financial year to avoid breaching the VAT threshold.

[deggles]

I think the threshold is any rolling 12-month period, not your financial year. With regards to invoice vs payment date, depends whether you opt for the Cash Accounting scheme or not.

[Doofus]

When you register for VAT, you add 20% onto your invoices, you don't give up 20%.

If you're not VAT registered and your turnover is £80,000 then you invoice £80,000. If you are VAT registered and your turnover is £80,000, then you invoice £96,000, so your turnover is still £80k

Plus, at the moment, you'll be getting invoices from suppliers which include VAT. If you're VAT registered, you can reclaim that from HMRC

[Olivera]

JapanRed said:

If a LTD company was in their final accounting quarter, and potentially was about to breach the £85k VAT threshold, would they be allowed to defer payments (eg ask creditors not to pay them) until the new financial year?

It seems pointless that a company would earn £85-107k as they would pay more VAT than they would earn. Eg a company earns £107k minus 20% VAT = £85,600. Would be better to just earn £84,900 surely?

Assume very little overheads with said company.

Or am I missing something?

1) You must register for VAT if you expect your turnover to go over 85k in the next 30 days, i.e. not when it actually goes over 85k
2) VAT is usually invoice based, not payment based, so deferring payments won't work (although there is a Cash Accounting mechanism)
3) VAT requires you to add on an additional 20% VAT, not pay 20% of the original amount
4) This sounds like artificially dodging VAT, which probably isn't legal
5) Get an accountant as most of what you have stated shows a thorough misunderstanding of how VAT works

[Dg504]

If genuinely a one off you can write to hmrc and explain - they will then grant you an exception or register you for VAT.

Take anything Eric comes along with very seriously.

Also as others have said, VAT is a tax you effectively collect on behalf of and pay to hmrc - so where today you invoice £1,000 and receive £1,000, if VAT registered you would invoice £1k plus VAT to your client and receive £1,200. You don’t lose out unless you client is similarly not VAT registered and asks for a discount.

So a question to consider is are your clients mostly VAT registered or not?

[robdcfc]

You also have to pay vat for the whole year of you breach the threshold so that's around 14k you'll owe them straight away.

Its your Turnover not invoices from suppliers so you would need to hold off on invoicing until next year if your trying to avoid registering bu that coul djust be kicking the can into next year if your that close already

[JapanRed]

Thanks all.

I can’t charge VAT as my customers don’t pay VAT (exempt services). So if I do go over £85k in a rolling 12 month period I’ll have to register.

If I went over to say £90k in a rolling 12m period, would I pay VAT on the whole £90k or just the £5k I’ve gone over? If it’s the whole £90k then my original argument still stands, it would be easier for me to just not work if my turnover was going to be less than £110k…

[JapanRed]

Olivera said:

JapanRed said:

If a LTD company was in their final accounting quarter, and potentially was about to breach the £85k VAT threshold, would they be allowed to defer payments (eg ask creditors not to pay them) until the new financial year?

It seems pointless that a company would earn £85-107k as they would pay more VAT than they would earn. Eg a company earns £107k minus 20% VAT = £85,600. Would be better to just earn £84,900 surely?

Assume very little overheads with said company.

Or am I missing something?

1) You must register for VAT if you expect your turnover to go over 85k in the next 30 days, i.e. not when it actually goes over 85k
2) VAT is usually invoice based, not payment based, so deferring payments won't work (although there is a Cash Accounting mechanism)
3) VAT requires you to add on an additional 20% VAT, not pay 20% of the original amount
4) This sounds like artificially dodging VAT, which probably isn't legal
5) Get an accountant as most of what you have stated shows a thorough misunderstanding of how VAT works

Thanks. Can I clarify what you mean by no.3?

I can’t “add on” 20% as I can’t charge VAT.

[JapanRed]

robdcfc said:

You also have to pay vat for the whole year of you breach the threshold so that's around 14k you'll owe them straight away.

Its your Turnover not invoices from suppliers so you would need to hold off on invoicing until next year if your trying to avoid registering bu that coul djust be kicking the can into next year if your that close already

Thanks. So in effect if turnover/invoices were say £110k I would only end up with about the same money as if I’d just earned £85k? It takes a lot to earn that additional £25k so my theory is just stick below the threshold.

This LTD Co is a side thing (I have a PAYE job). If I reach £80k in 10 months then it’s easier for me to just not work for the next 2 months than work, earn £100k and pay more back in VAT.

[NorthDave]

JapanRed said:

Thanks all.

I can’t charge VAT as my customers don’t pay VAT (exempt services). So if I do go over £85k in a rolling 12 month period I’ll have to register.

If I went over to say £90k in a rolling 12m period, would I pay VAT on the whole £90k or just the £5k I’ve gone over? If it’s the whole £90k then my original argument still stands, it would be easier for me to just not work if my turnover was going to be less than £110k…

If you dont charge VAT then you wouldn't pay HMRC VAT either. In essence you charge your customers whatever VAT they should pay and pass it on to HMRC, minus the VAT on anything you have bought. If all your customers are VAT exempt and you buy things then you might actually end up with a refund. This happens to us quite often.

There is a simplified VAT process where you can pay VAT (a reduced rate I think) on all earnings but you would be mad to sign up to that.

IANAA etc-

[Ziplobb]

JapanRed said:

Thanks all.

I can’t charge VAT as my customers don’t pay VAT (exempt services).

so there is no VAT to pay HMRC

Are you a farmer ?

They dont charge vat on sales but can claim 20% back on the invoices for stuff they buy so they end up with HMRC paying them each quarter (I think)

[AndyAudi]

JapanRed said:

Thanks all.

I can’t charge VAT as my customers don’t pay VAT (exempt services). So if I do go over £85k in a rolling 12 month period I’ll have to register.

If I went over to say £90k in a rolling 12m period, would I pay VAT on the whole £90k or just the £5k I’ve gone over? If it’s the whole £90k then my original argument still stands, it would be easier for me to just not work if my turnover was going to be less than £110k…

Really suggest you get an accountant to clarify everything you are doing as a number of terms you have used & your lack of understanding could land you in difficulty with HMRC.

As an aside you have not said what you do, however have said you can’t charge VAT to customers as “exempt services”. If your services are genuinely exempt, I am led to believe income from exempt services will not be included in the calculation of “taxable turnover”. So you may not ever be near the threshold you are concerned about…. Check though with someone who understands, eg the person who helped register your business with HMRC & does your tax returns etc….

[anonymous-user]

Unless you have 50000 invoices, filling in a vat return is easy

Some builders I know don't want to be vat registered as it keeps then non competitive against the non vat guys.

[JapanRed]

Thanks all.

I have an accountant but he’s away for a couple of weeks. I’ll check with him when he’s back but just wanted to get an idea of how it works on here in the meantime.

The people we provide a service to are exempt as they are healthcare related. They will not deal with us if we charge them VAT (they can go to other companies, most in this sector won’t charge them VAT.

We are not exempt therefore if we exceed £85k we will have to pay VAT. This has come from HMRC directly.

Can anyone answer my question as to whether we pay VAT on the whole £100k (if that is our invoice figure/turnover) or whether we pay it on £15k?

Am I right in thinking that in our scenario there is a dead man’s land between £85k and £110k where it’s just pointless working for that much.

[Doofus]

What do you actually sell?

[NorthDave]

JapanRed said:

Thanks all.

I have an accountant but he’s away for a couple of weeks. I’ll check with him when he’s back but just wanted to get an idea of how it works on here in the meantime.

The people we provide a service to are exempt as they are healthcare related. They will not deal with us if we charge them VAT (they can go to other companies, most in this sector won’t charge them VAT.

We are not exempt therefore if we exceed £85k we will have to pay VAT. This has come from HMRC directly.

Can anyone answer my question as to whether we pay VAT on the whole £100k (if that is our invoice figure/turnover) or whether we pay it on £15k?

Am I right in thinking that in our scenario there is a dead man’s land between £85k and £110k where it’s just pointless working for that much.

You have the wrong end of the stick. If your turnover is £100k and you havent charged any VAT then you wont pay any either. You will be able to reclaim VAT on any payments you have paid.

[Eric Mc]

JapanRed said:

Thanks all.

I can’t charge VAT as my customers don’t pay VAT (exempt services). So if I do go over £85k in a rolling 12 month period I’ll have to register.

If I went over to say £90k in a rolling 12m period, would I pay VAT on the whole £90k or just the £5k I’ve gone over? If it’s the whole £90k then my original argument still stands, it would be easier for me to just not work if my turnover was going to be less than £110k…

You start having to charge VAT from the point where you exceeded the £85,000 threshold.

If you fail to do this, at some point in the future, you will most likely have to go back in time, find the point where the £85,000 threshold was breached and pay over the missing VAT.

If that happens, you have two choices.

i) you can charge the "forgotten" VAT to your customers and ask the customer to pay the VAT amount to you following which you pay it over to HMRC

or

ii) you take it on the chin, don't charge the missing VAT to the customer and just pay it directly to HMRC from your available funds

If your customers are themselves VAT registered, billing them separately for the missing VAT may not be an issue as they can reclaim it themselves in their next VAT return - although they may object to being billed additional VAT because of the impact on their cash flow.

If your customers are NOT VAT registered (or the services they provide are VAT exempt), then they will not take kindly to being charged unexpected VAT that they cannot reclaim (in most cases) - so in that case you would almost definitely have to absorb the extra VAT cost yourself.

The moral of the story is to register for VAT as soon as you are aware that you are going to breach the £85,000 threshold and notify your customers.

[AndyAudi]

Doofus said:

What do you actually sell?

This,

It is possible to have to be vat registered & not charge vat.depending on what you are selling

(Agriculture was mentioned as being something that gets VAT back so makes sense to register even below the turnover threshold….)