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VAT Threshold - too high suggests HMG.
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- Lemon Quarter
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VAT Threshold - too high suggests HMG.
I'm expecting that the VAT registration threshold will be reducing.
https://www.gov.uk/government/uploads/s ... _final.pdf
The UK VAT registration threshold, at £83,000, is much higher than most other countries’ (generally closer to £20,000 across all countries with a VAT system or equivalent).
This influences and distorts business behaviour.
Would it be less distortive if the UK’s threshold were lowered to bring in more businesses?
If so, how would those small businesses cope?
What would be the impact of raising the limit to remove more businesses from VAT?
Or could the ‘cliff edge’ of registration be managed better?
The paper goes on to welcome your comments but, if the recent experiences with probate fees are anything to go by, it will be a waste of time.
The Government wants more and if they reckon that they can generate extra tax by netting more of us into VAT, they will do it, probably at the same time as digital tax comes in.
See page 22:- Being able to use a single submission to cover both VAT and the quarterly updates;
https://www.gov.uk/government/uploads/s ... _final.pdf
The UK VAT registration threshold, at £83,000, is much higher than most other countries’ (generally closer to £20,000 across all countries with a VAT system or equivalent).
This influences and distorts business behaviour.
Would it be less distortive if the UK’s threshold were lowered to bring in more businesses?
If so, how would those small businesses cope?
What would be the impact of raising the limit to remove more businesses from VAT?
Or could the ‘cliff edge’ of registration be managed better?
The paper goes on to welcome your comments but, if the recent experiences with probate fees are anything to go by, it will be a waste of time.
The Government wants more and if they reckon that they can generate extra tax by netting more of us into VAT, they will do it, probably at the same time as digital tax comes in.
See page 22:- Being able to use a single submission to cover both VAT and the quarterly updates;
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Re: VAT Threshold - too high suggests HMG.
supremetwo wrote:The Government wants more and if they reckon that they can generate extra tax by netting more of us into VAT, they will do it, probably at the same time as digital tax comes in.
It would likely be a highly unpopular move, increasing costs to end consumers as well as imposing additional compliance burdens on small businesses and voluntary organisations.
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Re: VAT Threshold - too high suggests HMG.
Absolutely ridiculous to think that a turnover of £20k per annum should justify a business needing to charge VAT. That's a turnover below the average wage. So immediately that small business either has to put prices up by 20% or take a massive hit. A lot of businesses could not survive that.
John
John
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Re: VAT Threshold - too high suggests HMG.
redsturgeon wrote:Absolutely ridiculous to think that a turnover of £20k per annum should justify a business needing to charge VAT. That's a turnover below the average wage. So immediately that small business either has to put prices up by 20% or take a massive hit. A lot of businesses could not survive that.
John
But bear in mind, VAT can be a benefit for many a small biz. Specifically, the ability to claim it back on business costs, including investment.
Where's the balance?
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Re: VAT Threshold - too high suggests HMG.
UncleEbenezer wrote:redsturgeon wrote:Absolutely ridiculous to think that a turnover of £20k per annum should justify a business needing to charge VAT. That's a turnover below the average wage. So immediately that small business either has to put prices up by 20% or take a massive hit. A lot of businesses could not survive that.
John
But bear in mind, VAT can be a benefit for many a small biz. Specifically, the ability to claim it back on business costs, including investment.
Where's the balance?
Yes I was aware of that but at £20k pa it is difficult to see the which companies would benefit and you can register for VAT at any stage below the threshold already if it is of benefit to you. I would think £50-60k pa would be more realistic.
John
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Re: VAT Threshold - too high suggests HMG.
redsturgeon wrote:UncleEbenezer wrote:redsturgeon wrote:Absolutely ridiculous to think that a turnover of £20k per annum should justify a business needing to charge VAT. That's a turnover below the average wage. So immediately that small business either has to put prices up by 20% or take a massive hit. A lot of businesses could not survive that.
John
But bear in mind, VAT can be a benefit for many a small biz. Specifically, the ability to claim it back on business costs, including investment.
Where's the balance?
Yes I was aware of that but at £20k pa it is difficult to see the which companies would benefit and you can register for VAT at any stage below the threshold already if it is of benefit to you. I would think £50-60k pa would be more realistic.
John
Claiming back VAT on raw materials will be little help if the trader's prices to the customer have to go up by 20%. As the UKGov article says, this would just bring the UK into line with most other EU countries, who basically prefer dealing with big companies at the expense of small ones, who cannot furnish such large bribes.
My company has been registered and non registered for VAT. The book keeping is a right PITA, and doubled my accountancy charges.
Personally I think this is a step towards HMRC insisting that all UK businesses file quaterly or even monthly accounts, and pay corporation tax several times a year, rather than just once. Or even setting up a sort of online set of accounts on an HMRC website, so that HMRC can just help themselves to the tax automatically.
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Re: VAT Threshold - too high suggests HMG.
Just to put my own comments into perspective. My company has been registered for VAT for 15 years. These days we pay five figure sums every quarter to HMRC. Our claims for VAT on expenses are perhaps 2 or 3K a quarter.
For us it is not a problem since 95% of our business is with other VAT registered entities so the VAT on our bill to them is irrelevant but for someone selling to private individuals it just means either a c20% hike to their customers or a c20% reduction in income.
Claiming back VAT on expenses is all well and good but I can't see many viable small businesses with turnovers of £20k where that would have a significant impact. With £20k turnover you would need almost no business expenses to make it a viable business, so ver little VAT claimable but an instant extra £4k to pay to HMRC.
John
For us it is not a problem since 95% of our business is with other VAT registered entities so the VAT on our bill to them is irrelevant but for someone selling to private individuals it just means either a c20% hike to their customers or a c20% reduction in income.
Claiming back VAT on expenses is all well and good but I can't see many viable small businesses with turnovers of £20k where that would have a significant impact. With £20k turnover you would need almost no business expenses to make it a viable business, so ver little VAT claimable but an instant extra £4k to pay to HMRC.
John
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Re: VAT Threshold - too high suggests HMG.
redsturgeon wrote:Just to put my own comments into perspective. My company has been registered for VAT for 15 years. These days we pay five figure sums every quarter to HMRC. Our claims for VAT on expenses are perhaps 2 or 3K a quarter.
For us it is not a problem since 95% of our business is with other VAT registered entities so the VAT on our bill to them is irrelevant but for someone selling to private individuals it just means either a c20% hike to their customers or a c20% reduction in income.
Claiming back VAT on expenses is all well and good but I can't see many viable small businesses with turnovers of £20k where that would have a significant impact. With £20k turnover you would need almost no business expenses to make it a viable business, so ver little VAT claimable but an instant extra £4k to pay to HMRC.
John
Haven't you put your finger on what is actually going on here. "I can't see many viable small businesses with turnovers of £20k". In most EU countries, such companies/traders are almost certainly doing far more than £20K worth of business. It is just that only that amount goes through the books. As far as the EU is concerned, a £20K business could easily be turning over ten times that amount.
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Re: VAT Threshold - too high suggests HMG.
Nimrod103 wrote:redsturgeon wrote:Just to put my own comments into perspective. My company has been registered for VAT for 15 years. These days we pay five figure sums every quarter to HMRC. Our claims for VAT on expenses are perhaps 2 or 3K a quarter.
For us it is not a problem since 95% of our business is with other VAT registered entities so the VAT on our bill to them is irrelevant but for someone selling to private individuals it just means either a c20% hike to their customers or a c20% reduction in income.
Claiming back VAT on expenses is all well and good but I can't see many viable small businesses with turnovers of £20k where that would have a significant impact. With £20k turnover you would need almost no business expenses to make it a viable business, so ver little VAT claimable but an instant extra £4k to pay to HMRC.
John
Haven't you put your finger on what is actually going on here. "I can't see many viable small businesses with turnovers of £20k". In most EU countries, such companies/traders are almost certainly doing far more than £20K worth of business. It is just that only that amount goes through the books. As far as the EU is concerned, a £20K business could easily be turning over ten times that amount.
Yes.
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Re: VAT Threshold - too high suggests HMG.
Nimrod103 wrote:redsturgeon wrote:Just to put my own comments into perspective. My company has been registered for VAT for 15 years. These days we pay five figure sums every quarter to HMRC. Our claims for VAT on expenses are perhaps 2 or 3K a quarter.
For us it is not a problem since 95% of our business is with other VAT registered entities so the VAT on our bill to them is irrelevant but for someone selling to private individuals it just means either a c20% hike to their customers or a c20% reduction in income.
Claiming back VAT on expenses is all well and good but I can't see many viable small businesses with turnovers of £20k where that would have a significant impact. With £20k turnover you would need almost no business expenses to make it a viable business, so ver little VAT claimable but an instant extra £4k to pay to HMRC.
John
Haven't you put your finger on what is actually going on here. "I can't see many viable small businesses with turnovers of £20k". In most EU countries, such companies/traders are almost certainly doing far more than £20K worth of business. It is just that only that amount goes through the books. As far as the EU is concerned, a £20K business could easily be turning over ten times that amount.
PS I was consulting in the oil business, where the ultimate client was always a foreign subsidiary based in a non EU tax haven. So they just reclaimed the VAT on export of the report/analysis whatever. It was just a merry go round, with no net VAT being collected by the Govt. In fact, they lost the VAT charged on my small amount of consumables.
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Re: VAT Threshold - too high suggests HMG.
redsturgeon wrote:Absolutely ridiculous to think that a turnover of £20k per annum should justify a business needing to charge VAT. That's a turnover below the average wage. So immediately that small business either has to put prices up by 20% or take a massive hit. A lot of businesses could not survive that.
John
Not in the least. If you're selling to VAT-registered businesses, or if you're selling outside the scope of VAT, then being VAT-registered is pure profit on your expenses regardless of turnover. That's my own current position with VAT.
Re: VAT Threshold - too high suggests HMG.
There are many contractors with negligible VATable expenses compared to the VAT claimed on their services. Now that the FRS is effectively scrapped for PSCs they are simply using us to collect their tax for them free of charge.
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Re: VAT Threshold - too high suggests HMG.
UncleEbenezer wrote:redsturgeon wrote:Absolutely ridiculous to think that a turnover of £20k per annum should justify a business needing to charge VAT. That's a turnover below the average wage. So immediately that small business either has to put prices up by 20% or take a massive hit. A lot of businesses could not survive that.
John
Not in the least. If you're selling to VAT-registered businesses, or if you're selling outside the scope of VAT, then being VAT-registered is pure profit on your expenses regardless of turnover. That's my own current position with VAT.
I don't understand what you mean here. You shouldn't be making a profit on your legitimate business expenses. Or do you mean since the VAT is all passed on to the customer or claimed back from the Govt, it is not a concern from the point of view of calculating your profit?
Except there is the cost of the admin and paperwork, the extra accounting services, and the cost of a fine if you make a mistake, which I am told many people do even unintentionally.
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Re: VAT Threshold - too high suggests HMG.
Nimrod103 wrote:UncleEbenezer wrote:redsturgeon wrote:Absolutely ridiculous to think that a turnover of £20k per annum should justify a business needing to charge VAT. That's a turnover below the average wage. So immediately that small business either has to put prices up by 20% or take a massive hit. A lot of businesses could not survive that.
John
Not in the least. If you're selling to VAT-registered businesses, or if you're selling outside the scope of VAT, then being VAT-registered is pure profit on your expenses regardless of turnover. That's my own current position with VAT.
I don't understand what you mean here. You shouldn't be making a profit on your legitimate business expenses. Or do you mean since the VAT is all passed on to the customer or claimed back from the Govt, it is not a concern from the point of view of calculating your profit?
Except there is the cost of the admin and paperwork, the extra accounting services, and the cost of a fine if you make a mistake, which I am told many people do even unintentionally.
A computer is a legitimate business expense. If a computer is £250 + VAT, then the cost if I'm VAT registered is £250, if not VAT registered it's £300. That's £50 profit for being VAT registered. Though when I first set up, my computers were an order of magnitude more expensive.
In the case of a new business involving investment, that £50 profit could easily be £50k, or even £500k. Turnover £20k, in the expectation of growth.
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Re: VAT Threshold - too high suggests HMG.
UncleEbenezer wrote:Nimrod103 wrote:UncleEbenezer wrote:Not in the least. If you're selling to VAT-registered businesses, or if you're selling outside the scope of VAT, then being VAT-registered is pure profit on your expenses regardless of turnover. That's my own current position with VAT.
I don't understand what you mean here. You shouldn't be making a profit on your legitimate business expenses. Or do you mean since the VAT is all passed on to the customer or claimed back from the Govt, it is not a concern from the point of view of calculating your profit?
Except there is the cost of the admin and paperwork, the extra accounting services, and the cost of a fine if you make a mistake, which I am told many people do even unintentionally.
A computer is a legitimate business expense. If a computer is £250 + VAT, then the cost if I'm VAT registered is £250, if not VAT registered it's £300. That's £50 profit for being VAT registered. Though when I first set up, my computers were an order of magnitude more expensive.
In the case of a new business involving investment, that £50 profit could easily be £50k, or even £500k. Turnover £20k, in the expectation of growth.
I'm sorry, I'm struggling a bit here. Could you explain your business model of making bookable profits from VAT?
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Re: VAT Threshold - too high suggests HMG.
redsturgeon wrote:Absolutely ridiculous to think that a turnover of £20k per annum should justify a business needing to charge VAT.
If you think that is bad, then don't look at the details of supplying digital services to consumers in other member states where the registration limit is zero. Supply an app costing 1p to a consumer in another member state and you are liable to register for VAT there (or register in the UK and use MOSS).
Anyway, as the report notes, 45% of all VAT registrations are trading below the registration limit. The report suggests a number of reasons they might have done so, not least the FRS, but it does challenge the argument it is burdensome for small businesses.
As the report also mentions, having such a high registration threshold creates a cliff edge that has a massive impact for businesses that fall over it, and the exists of the cliff edge creates an incentive for businesses to play games to stay the right side of it. Drop the limit to the £20k EU average and realistically everyone in business needs to register and the games stop.
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Re: VAT Threshold - too high suggests HMG.
Anyway, as the report notes, 45% of all VAT registrations are trading below the registration limit. The report suggests a number of reasons they might have done so, not least the FRS, but it does challenge the argument it is burdensome for small businesses.
As has been pointed out, if you supply to other entities that are VAT registered then there is no issue and it could in fact be advantageous to you to register...extra admin aside. But any small business supplying VATable goods to the general public is pretty much shafted once the get to the threshold. Either prices go up 20% or profits go down 20%.
John
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Re: VAT Threshold - too high suggests HMG.
redsturgeon wrote:But any small business supplying VATable goods to the general public is pretty much shafted once the get to the threshold. Either prices go up 20% or profits go down 20%.
Which is why you have businesses trying not to fall over the cliff edge and play games to stay the right side, since as you mention, if they fall over they are shafted. Push everyone over by lowering the threshold dramatically and the playing field is level again.
Sure there will be some people who won't buy at the increased price, but as all suppliers will be charging at that price they are competing on a fair basis for those customers.
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Re: VAT Threshold - too high suggests HMG.
Everything that's been posted here is predicated on the acceptance of VAT in the first place.
Does anyone really think the complex rules of VAT make sense? As opposed to, say, a simple sales tax.
Does anyone really think the complex rules of VAT make sense? As opposed to, say, a simple sales tax.
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Re: VAT Threshold - too high suggests HMG.
UncleEbenezer wrote:A computer is a legitimate business expense. If a computer is £250 + VAT, then the cost if I'm VAT registered is £250, if not VAT registered it's £300. That's £50 profit for being VAT registered.
It's not quite as simple as that, as if you do have to pay the VAT it's offsettable against your profits anyway.
In fact for some small items I just put them through the books without bothering to reclaim the VAT, as the time and effort is more than the amount's worth.
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