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When do I register for VAT?

You can google the VAT registration threshold – its currently £85k  – but so many people look at their wrong sales figure to compare to this number – and registering for VAT late can be very expensive!

You have to register for VAT when your “VAT taxable turnover” in a 12 month period is over £85k.  If we take ” VAT taxable turnover” to be your sales (which simplifies it somewhat,) then you need to look at your sales figure for the last 12 months.

This is NOT THE SAME AS YOUR SALES SINCE THE START OF YOUR FINANCIAL YEAR.
There is no starting again when you get to your year end – you need to look at your sales figure for the last 12 months – ON A ROLLING BASIS.

So you need to look at Sept 17 – Aug 18, and then Oct 17 – Sept 18, then Nov 17 – Oct 18 etc etc.

If your turnover is around the £75-80k, you need to keep a close eye on it each month to see if you have gone over the registration threshold.  If you have exceeded £85k, then you have one month in which to register for VAT and then you need to start charging VAT in the following month.

For example if your sales for the year Sept 17 to 31 Aug 18 were over £85k for the first time, then you need to register by 30 Sept 18 and you will be registered from 1 October.

If you are late in registering, then you are deemed to be register from 1 October anyway, and you are liable for the vat that you should have been charging, plus potentially a penalty, so this can be very expensive for your business!

If your turnover has gone over the threshold temporarily, say you have sent out an unusually large invoice – you can apply for an exception to registration, but you need to write to HMRC with evidence that you sales for the next 12 months will be under the VAT deregistration threshold of £83k.

So do keep an eye on your turnover if you are close to the threshold.  I see late registration time and time again, as business owners only look at current year sales, not sales for the last 12 months.

For more information then please contact Rosie Forsyth at Wilkins & Co.

 

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Taxes Made Easy 2017/18 – Free to Download

Hot of the press is my new tax planning brochure for 2017/18.

This easy to read guide provides you with key tax planning points for the current year.

Covering personal tax and matters affecting both your business and your family, my guide suggests many ways in which you can save money on your tax bill by taking full advantage of the current tax system, as well as highlighting some of the pitfalls you should avoid.

Chose your donut to download with my compliments!

 

If I can help you with any issues covered in my guide, then please get in touch.

Do let me know if it’s been of help!

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Is it time to say GOODBYE to the Flat Rate VAT Scheme?

The changes announced last Autumn to certain businesses using the flat rate VAT scheme come into effect this month.

What were the changes and how may they affect you?

Businesses using the flat rate vat scheme pay over a lower rate of vat calculated only on their gross sales figures – the rate they pay varies according to the industry but was generally between 13.5% and 14.5%.

From 1 April 2017 these businesses must also determine whether they meet the definition of a “LIMITED COST TRADER” – and if they do the rate at which they pay over VAT is being amended to 16.5%.

A Limited Cost Trader is defined as one whose VAT inclusive expenditure on GOODS is either:

  • Less than 2% of their VAT inclusive turnover in a prescribed period ( which we think will be a vat quarter)
  • Greater than 2% but less than £1000 per annum

GOODS, for this test, must be exclusively used for the business, but exclude:

  • Capital expenditure
  • Food and drink for consumption by the business or its employees
  • Vehicles, vehicle parts and fuel

So the majority of contractors, and most business providing a service, will be caught by these rules, as the amounts of goods that you actually buy are very small.  Computer software is a service, as are phone bills etc.

The Maths

If you are currently on a flat rate of 14.5%:

Sales invoice to client £10000 plus vat means you receive £12000 from your client.

VAT paid over to HMRC is 14.5% x £12000 = £1740.  Your net cashflow benefit is £260 (£208 after corporation tax)

Under the new rules, 16.5% will be paid over = £1,980 – a benefit of £20 (£16 after corporation tax)

So if your turnover is below the VAT registration threshold, you really need to ask whether it’s worth it any more, and consider deregistering.

If you spend money on services, and these services have VAT charged on them, you will probably be better off changing to the normal VAT rules, and reclaiming the input tax on services.  You need to weigh up against this the fact that submitting your VAT return may be more complicated each quarter and you need to make sure your accounting records are up the job!

My clients are deregistering if possible, but where their turnover is over the threshold, most are moving to the normal vat rules to enable them to reclaim any input tax that they have incurred.    If you do change methods, you do need to write to HMRC and let them know.

Which way have you decided to go?

 

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Flat Rate VAT scheme changes announced for businesses providing a service

The devil’s always in the detail.

Mr Hammond said yesterday that he was going to shut down “inappropriate use” of the Flat Rate VAT scheme – but that’s not quite what he meant.  The planned changes will affect most service industries using the scheme.

Currently businesses determine which rate to use based on their industry sector. This is generally between 13.5% and 14.5%.

From 1 April 2017 they must also determine whether they meet the definition of a “LIMITED COST TRADER” – and if they do they are being forced to use a new rate of 16.5%.

A Limited Cost Trader will be defined as one whose VAT inclusive expenditure on GOODS is either:

  • Less than 2% of their VAT inclusive turnover in a prescribed period ( which we think will be a vat quarter)
  • Greater than 2% but less than £1000 per annum

GOODS, for this test, must be exclusively used for the business, but EXCLUDE:

  • Capital expenditure
  • Food and drink for consumption by the business or its employees
  • Vehicles, vehicle parts and fuel

So the majority of contractors, and most business providing a service, will be caught by these rules, as the amounts of goods that you actually buy are very small.  Computer software is a service as are phone bills etc.

 

The Maths

If you are currently on a flat rate of 14.5%:

Sales invoice to client £10000 plus vat means you receive £12000 from your client.

VAT paid over to HMRC is 14.5% x £12000 = £1740.  Your net cashflow benefit is £260 (£208 after corporation tax)

Under the new rules, 16.5% will be paid over = £1,980 – a benefit of £20 (£16 after corporation tax)

So if your turnover is below the VAT registration threshold, you really need to ask whether it’s worth it any more, and consider deregistering.

If you have a high outlay on services which have VAT charged on them, you may be better off changing to the normal VAT rules, and reclaiming the input tax on services.

Which ever way you go – it’s one more thing to think about and one more attack on the small business!

 

For further information and help, please contact me.

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VAT and extra profit? Look at the Flat Rate VAT Scheme

Mention VAT and most people either panic or switch off!!

But small businesses can use a special scheme called the Flat Rate scheme which takes a lot of the hard work out of VAT and gives small businesses a cash flow advantage.  Got your attention back?  Good!

Normally when you register for VAT you calculate the vat you charge on your sales, deduct the vat you have been charged on your purchases and pay over the difference to HMRC once a quarter.

Under the flat rate scheme, when you register you are given a percentage based on your industry sector (https://www.gov.uk/vat-flat-rate-scheme/how-much-you-pay).

 

This is then how the scheme works:

You invoice your client as normal say £1000, plus VAT of 20% making a total of £1200.

You then ignore any purchases that you have made in the period, and just calculate vat based on your gross sales at your percentage.  As an accountant, my percentage is 14.5% so 14.5% of £1200 = £174

I have therefore got in £200 in vat from my customer and only paid out £174.

The scheme is only advantageous if you have business where you don’t buy in a lot of items with VAT on – ie if your main cost is time!
To be eligible to join the scheme, your net turnover must be under £150,000.  If you have just registered for VAT then you get an initial year discount of 1% as well, adding to your cashflow advantage for 12 months.
Although under the scheme, you don’t reclaim the vat on purchases used in the business, if you invest in capital items (computers etc) and the vat-inclusive cost of a single purchase is over £2,000 – then you are allowed to claim back the VAT.
So although you do still need to complete quarterly returns, the flat rate scheme is a much simplified scheme and one most small businesses should definitely consider if thinking about / or having to register for VAT.
For more information please contact Rosie Forsyth at Wilkins & Co.

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