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VAT

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brightncheerful
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VAT

#96147

Postby brightncheerful » November 16th, 2017, 10:57 am

Having been VAT registered since about 6 months after VAT was introduced, it never crossed my mind not to register. Which brings me to wondering why it is not compulsory for all businesses to be VAT-registered? That would avoid what I consider to be a nonsensical attitude by the government in allowing unfair competition: namely from businesses that are below the VAT registration threshold.

What do you think?

RedSnapper
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Re: VAT

#96161

Postby RedSnapper » November 16th, 2017, 11:41 am

brightncheerful wrote:....why it is not compulsory for all businesses to be VAT-registered?


Because the current system takes several million small businesses out the bureaucracy of the VAT system and consequently saves a very significant sum in administration costs.

[url]unfair competition: namely from businesses that are below the VAT registration threshold.[/url] Very sweeping statement that may be true in a few situations but is certainly not in many others. If you deal mainly with VAT registered customers then been VAT registered yourself is (usually) a definite advantage. The only potential advantage to not being VAT registered is the ability to undercut on price but that only works for customers that are not VAT registered and even then your margin is squeezed by the inability to reclaim the input tax on supplies.

PinkDalek
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Re: VAT

#96182

Postby PinkDalek » November 16th, 2017, 1:01 pm

RedSnapper wrote:... If you deal mainly with VAT registered customers then been VAT registered yourself is (usually) a definite advantage. The only potential advantage to not being VAT registered is the ability to undercut on price but that only works for customers that are not VAT registered and even then your margin is squeezed by the inability to reclaim the input tax on supplies.


Another potential advantage is where the customer is partially or wholly exempt. Such as banks and similar institutions. I've no idea if they would engage unregistered suppliers mind you.

brightncheerful
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Re: VAT

#96281

Postby brightncheerful » November 16th, 2017, 6:21 pm

All the banks I deal with employ external advisers that are VAT registered businesses. The same goes for funeral directors and betting shops that can be partially-exempt.

As for cost of administration to HMRC, that's another nonsense in my opinion. Same also to the business: accounts software overtook manual bookkeeping long ago.

The recent change to the Flat Rate Scheme (which incidentally I fell foul of without realising because of the exceptions to the business expenses) was introduced to remind VAT registered businesses that the FRS isn't intended to enable those on it to make a profit. In any event, it isn't really profit in the true sense, he said having lost out on 8% differential: one still has to pay income tax on the VAT 'profit'. And actually it's useful not being on the FRS because now I won't have to spend at least £2000 on capital expenditure to be able to reclaim the VAT.

As for most small businesses, it seems to me that if your customers can't afford an extra 20% then either your prices should be lower or the business is more of a hobby. In any event, since many small businesses deliberately keep their turnover below the threshold, HMRC (us) are losing out; and possibly too from another check on whether all the expenses offset against tax are indeed legitimate deductible business expenses.

According to Gov: "The level of self-employment in the UK increased from 3.8 million in 2008 to 4.6 million in 2015. While this strong performance is among the defining characteristics of the UK’s economic recovery, the recent rise in self-employment is the extension of a trend started in the early 2000s.Full-time and part-time workers each account for around half of the rise in the absolute number of self-employed workers, but the growth rate of the part-time mode has been much stronger. Part time self-employment grew by 88% between 2001 and 2015, compared to 25% for the full-time mode. As a result, part-time self-employment accounts for 1.2 percentage points of the 1.6 percentage point increase in the self-employment share of all employment between 2008 and 2015."

AndyPandy
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Re: VAT

#96692

Postby AndyPandy » November 18th, 2017, 10:30 am

RedSnapper wrote:
brightncheerful wrote:....why it is not compulsory for all businesses to be VAT-registered?


Because the current system takes several million small businesses out the bureaucracy of the VAT system and consequently saves a very significant sum in administration costs.


To be fair, I use Quickbooks and my VAT Return takes me about 10-15 minutes each quarter, loading up QB, logging into the Government Gateway and copying the figures across. Payment is taken automatically/electronically.

It does help that all my supplies are 100% vatable and inputs and outputs are fewer, larger amounts than, say, a shop that may have different vat rates on different items.

Good timing with the question as there is a report in today's paper (well, the Daily Mail at any rate) that the Chancellor has been considering halving the VAT threshold in the Budget (to about £43K t/o which would probably bring most full-time businesses into reach)

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Re: VAT

#96697

Postby redsturgeon » November 18th, 2017, 10:47 am

Doing the quarterly VAT returns is not a big issue.

99% of our customers are VAT registered so it makes absolutely no difference to them. We probably invoiced for VAT of about £100k this year, about £99k of that will have been claimed back from HMRC by our customers.

We probably claimed back about £20k of VAT ourselves. Not sure what HMRC gained from our business being VAT registered.

John

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Re: VAT

#96729

Postby midnightcatprowl » November 18th, 2017, 1:46 pm

The current VAT registration threshold actually encourages people not to expand their businesses beyond a certain point. People get so scared of the whole VAT thing they just won't risk having to do it. But as you've got to keep proper records for tax purposes in any case the extra work in being VAT registered is minimal.

Slarti
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Re: VAT

#96776

Postby Slarti » November 18th, 2017, 5:33 pm

brightncheerful wrote:Having been VAT registered since about 6 months after VAT was introduced, it never crossed my mind not to register. Which brings me to wondering why it is not compulsory for all businesses to be VAT-registered? That would avoid what I consider to be a nonsensical attitude by the government in allowing unfair competition: namely from businesses that are below the VAT registration threshold.

What do you think?


Well for me, unregistered businesses are no competition at all, as all of my customers for the last 15 or 20 years have insisted on a VAT registered Ltd company, even for one man bands.

I don't understand their logic, but am quite happy that they have it.


But, as a home owner, I am also happy that there are small tradesmen out there who can happily survive on a turnover of less than £85K and who therefore keep my plumbing, etc costs down.

Slarti

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Re: VAT

#96779

Postby johnhemming » November 18th, 2017, 5:46 pm

Someone doing a task for one of my businesses once said that if i paid them cash they would take off the vat. I said vat was not an issue as it is reclaimed, to which their response was that they were not vat registered.

There are all sorts of people in the world.

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Re: VAT

#96804

Postby Alaric » November 18th, 2017, 9:25 pm

Slarti wrote:But, as a home owner, I am also happy that there are small tradesmen out there who can happily survive on a turnover of less than £85K and who therefore keep my plumbing, etc costs down.


Anyone supplying services to individuals should be cheaper if they aren't VAT registered.

Chess and Bridge aren't sports for VAT purposes, therefore if the turnover is high enough, there's a 20% tax on entry fees and membership costs. A high VAT threshold keeps a number of small scale organisations out of having to charge VAT on their services.

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Re: VAT

#97703

Postby Thehustle » November 22nd, 2017, 12:38 am

Completely agree with the poster on companies not expanding due to VAT.

The problem lies where VAT conversations cover such broad industries.

In Spain everyone is registered and in truth for a number of industries namely retail, that should be the case.

I have lost count of the number of competitors who won't give receipts when asked or when do; have no vat numbers. How HMRC hasn't fathomed that a shop in their location couldn't possibly pay the wages, the bills, the rent and the cost of goods on the margins they have without needing to be VAT registered: beggars belief and endangers my staffs jobs, tax take from our business and the ancillary businesses that service us. This year I have paid net £130,000 to HMRC knowing that my diligence pays for NHS, Schools and services.

When customers claim they can get something cheaper elsewhere it is dispiriting as they are likely to be among those that complain about tax evasion of the elites.

The industry I work in is still quite embrionic and as such our suppliers do not offer price breaks to bigger buyers that eclipse the price advantage a non registered retailer has.

The talk of small business often ignores the fact that small business does include those with turnovers in the millions and not just self employed individuals. I don't know whether it's feasible but there should be a distinction between a self employed vat status and an employing business's vat status.

If I was a graphic designer, an £83000 Vat threshold is magic, if I'm a retailer, it's really surprising you can still be open.

The system in the UK does not facilitate expansion or scale up. We have taken over 18 sites in 3 years and all are still early stage stores and I would consider us small yet we are also clobbered with biz rates for trying to become something bigger. But the one man bands sucking the vat radar also get free rates at times.

If it was an even playing field for tax collection it wouldn't be so bad.

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Re: VAT

#97793

Postby bungeejumper » November 22nd, 2017, 12:18 pm

redsturgeon wrote:Doing the quarterly VAT returns is not a big issue.

99% of our customers are VAT registered so it makes absolutely no difference to them....We probably claimed back about £20k of VAT ourselves. Not sure what HMRC gained from our business being VAT registered.

Ditto for me, as a sole trader - all of my customers are VAT registered, and even at my limited activity level I find that being VATted gives me a refund of maybe £2,000 a year.

I don't use QuickBooks but have my own Excel spreadsheet, which can cope with VATable payments, non-Vatable payments and a third category where I only claim for an apportioned part of the expenditure. (eg personal/business car use.) It spits out the numbers for my quarterly VAT returns, which take all of five minutes to do, four times a year. It isn't rocket science.

Actually the OP is probably asking the wrong question. The EU has a mostly-low turnover threshold for VAT registration which can go as low as 1,345 euros per annum (Netherlands) or nil in Spain or Sweden. We, by comparison, have one of the very highest thresholds. Which may mean that our smallest enterprises spend less time on red tape than their continental counterparts.

BJ

StepOne
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Re: VAT

#97818

Postby StepOne » November 22nd, 2017, 1:49 pm

No change to VAT threshold in the budget - frozen for two years with a promise to consult on reducing the 'cliff-edge' effect when a business crosses it.

StepOne

Charlottesquare
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Re: VAT

#97895

Postby Charlottesquare » November 22nd, 2017, 5:35 pm

brightncheerful wrote:As for cost of administration to HMRC, that's another nonsense in my opinion. Same also to the business: accounts software overtook manual bookkeeping long ago.



Not so, recent analysis re MTD suggests circa 28% of small business entities currently use bespoke accounts software, the others use excel/paper/whatever.

However not long to go re MTD for vat (deferred at present re income tax) where all vat registered entities will need to use software that directly uploads vat returns to HMRC. If they do not change the April 2019 timetable then to avoid changing accounts platforms mid year (nothing worse than trying to prepare annual accounts prepared on two different software systems) some clients with say 30 June year ends will need to switch by July 2018, shame the spec of the software etc is still not agreed. (I expected an update on HMRC website today re progress (usually buried on a budget day) but to date have seen nothing.)

The Finance Bill 2017 (2) working its way forward sort of outlines requirements but is a tad short on detail, but don't worry, most of the detail will get thrust in by SI with little scrutiny by MPs.

I do not act for any non vat registered business entities (except property companies) but do know from past experience in practice that many clients over threshold cannot deal with vat without hand holding, those under a lot would not have a clue.

HMRC seem to be selling the myth that all you will need to do is take photos of invoices and add them to your software, simples, catch is omission/duplication/knowledge of what you may claim etc, errors will be rife.

There also seems to be moves to squeeze the profession out of the loop (cannot access client personal tax accounts etc) ,when most taxpayers are unrepresented will make it a lot easier for HMRC investigations to pick off the weak ones in the flock; maybe that is the plan (does not bother me, by that time will be retired, but if interested catch up with a few of the Tony Margaritelli (of ICPA) online interviews, interesting (saw him at Accounting Live at the start of the month)

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Re: VAT

#98566

Postby Slarti » November 24th, 2017, 4:11 pm

Charlottesquare wrote:Not so, recent analysis re MTD suggests circa 28% of small business entities currently use bespoke accounts software, the others use excel/paper/whatever.


MTD?


Charlottesquare wrote:However not long to go re MTD for vat (deferred at present re income tax) where all vat registered entities will need to use software that directly uploads vat returns to HMRC. If they do not change the April 2019 timetable then to avoid changing accounts platforms mid year (nothing worse than trying to prepare annual accounts prepared on two different software systems) some clients with say 30 June year ends will need to switch by July 2018, shame the spec of the software etc is still not agreed. (I expected an update on HMRC website today re progress (usually buried on a budget day) but to date have seen nothing.)

HMRC seem to be selling the myth that all you will need to do is take photos of invoices and add them to your software, simples, catch is omission/duplication/knowledge of what you may claim etc, errors will be rife.


An April 2019 timetable wouldn't stop many companies from changing accounting systems mid year as, over the years I think that I have seen every month end used as a year end.
Plus, any software supplier worth their fee would transfer the part year into the new system. Done it myself many times.

I too am glad I'll be retired by then.

Slarti

Charlottesquare
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Re: VAT

#98587

Postby Charlottesquare » November 24th, 2017, 5:06 pm

Slarti wrote:
Charlottesquare wrote:Not so, recent analysis re MTD suggests circa 28% of small business entities currently use bespoke accounts software, the others use excel/paper/whatever.


MTD?


Charlottesquare wrote:However not long to go re MTD for vat (deferred at present re income tax) where all vat registered entities will need to use software that directly uploads vat returns to HMRC. If they do not change the April 2019 timetable then to avoid changing accounts platforms mid year (nothing worse than trying to prepare annual accounts prepared on two different software systems) some clients with say 30 June year ends will need to switch by July 2018, shame the spec of the software etc is still not agreed. (I expected an update on HMRC website today re progress (usually buried on a budget day) but to date have seen nothing.)

HMRC seem to be selling the myth that all you will need to do is take photos of invoices and add them to your software, simples, catch is omission/duplication/knowledge of what you may claim etc, errors will be rife.


An April 2019 timetable wouldn't stop many companies from changing accounting systems mid year as, over the years I think that I have seen every month end used as a year end.
Plus, any software supplier worth their fee would transfer the part year into the new system. Done it myself many times.

I too am glad I'll be retired by then.

Slarti


If you have two systems that are compatible, but if you currently have excel sheets/paper records etc you really need to change before year start or face inserting journal into new set possibly dealing with say PL/SL balances etc, I have melded different systems over the years and it is a right chore at times best avoided.

MTD?=Making Tax Digital

Changing accounts year ends, especially with sole traders/ partnerships, can give rise to interesting perms re taxable profits, though I think some of the discussions re changing basis periods got dropped meantime when the MTD project more morphed into the MVD project (making vat digital)

Slarti
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Re: VAT

#98611

Postby Slarti » November 24th, 2017, 7:05 pm

Charlottesquare wrote:If you have two systems that are compatible, but if you currently have excel sheets/paper records etc you really need to change before year start or face inserting journal into new set possibly dealing with say PL/SL balances etc, I have melded different systems over the years and it is a right chore at times best avoided.

MTD?=Making Tax Digital

Changing accounts year ends, especially with sole traders/ partnerships, can give rise to interesting perms re taxable profits, though I think some of the discussions re changing basis periods got dropped meantime when the MTD project more morphed into the MVD project (making vat digital)



I have spent the last 25 years transferring data from one system to another when my customers have either decided to to upgrade to a better system or have been taken over. Excel spreadsheets are usually easy to create import files from. The worst ones are when the data is from Sage where you don't have a simple 2 line balanced journal entry, but 2 one line journal entries that are equal and opposite. That was a fun few weeks.

OK mostly I have been working for larger organisations, given the system I was taking data into, so I haven't had to do had written to computer since 1982 when it was putting my then employer onto a machine with twin 8" floppies and no hard drive. It was worth it.

I usually find that the biggest problem when people change accounting period is with the depreciation and it often seems that whichever way you do it, the auditors don't like it. Even if you asked them first.

Making Tax Digital and Making VAT Digital both sound as if they are going to be even more fun than RTI for payroll where I have seen people's tax code being randomly changed and the back tax wiping out their pay that month. I really am so glad I am going to be finished before that all comes in.

Slarti

Charlottesquare
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Re: VAT

#98655

Postby Charlottesquare » November 24th, 2017, 8:50 pm

Slarti wrote:
Charlottesquare wrote:If you have two systems that are compatible, but if you currently have excel sheets/paper records etc you really need to change before year start or face inserting journal into new set possibly dealing with say PL/SL balances etc, I have melded different systems over the years and it is a right chore at times best avoided.

MTD?=Making Tax Digital

Changing accounts year ends, especially with sole traders/ partnerships, can give rise to interesting perms re taxable profits, though I think some of the discussions re changing basis periods got dropped meantime when the MTD project more morphed into the MVD project (making vat digital)



I have spent the last 25 years transferring data from one system to another when my customers have either decided to to upgrade to a better system or have been taken over. Excel spreadsheets are usually easy to create import files from. The worst ones are when the data is from Sage where you don't have a simple 2 line balanced journal entry, but 2 one line journal entries that are equal and opposite. That was a fun few weeks.

OK mostly I have been working for larger organisations, given the system I was taking data into, so I haven't had to do had written to computer since 1982 when it was putting my then employer onto a machine with twin 8" floppies and no hard drive. It was worth it.

I usually find that the biggest problem when people change accounting period is with the depreciation and it often seems that whichever way you do it, the auditors don't like it. Even if you asked them first.

Making Tax Digital and Making VAT Digital both sound as if they are going to be even more fun than RTI for payroll where I have seen people's tax code being randomly changed and the back tax wiping out their pay that month. I really am so glad I am going to be finished before that all comes in.

Slarti


You have the advantage of dealing with financially literate parties, my clients are mainly small owner managed business entities where things like bank reconciliations are alien concepts best left to the accountant, and often the best one can hope is that if one prepares excel sheets and explain how to input they do not make too much of a hash, excel is very quick to correct mispostings etc.

MTD itself looked like a nightmare waiting to happen, in effect six returns per client a year, four quarterlies, one correcting and then a final re other tax return data, if also a landlord you also were looking at another five on top. Whilst it is currently in limbo (although I think HMRC user testing is continuing) there is as yet no signs that the exercise with vat will be halted. The timing is stunning, just when all the rules re vat and Europe could be set to change they propose slapping this in at the same time.

Will be interesting with retail schemes, annual adjustments, first registration re goods/equipment on hand, partial exemption and if we still have them reverse charges.

My bet is the HMRC new systems will self destruct as with all HMRC software they will not be fit for purpose.

And selling the software costs to small clients, not good fun.


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