VAT

VAT

My turnover is over the threshold. Should I register for VAT?

For many small businesses, VAT is something they could manage without. Finishing returns can be tedious and on the off chance that you make a mistake, HMRC can push serious punishments. However you may be able to make it work for you… Regardless of whether your turnover is below the enlistment limit of £85,000 you can seek voluntary enrolment

The main question is who are your clients? In the event that you bargain essentially with purchasers, VAT is an expense to them that they are unable to claim back. So being VAT registered is an extra cost to them. At which point your customers may decide that they are able to do business with another company who will not charge them extra for VAT..

In the event that you are managing business clients who are enrolled for VAT themselves, they can recover this cost so it is not an extra charge to them.

The second question is, what amount of VAT would you say you are paying out on costs and direct expenses? How about we take a look at a fundamental sample:

XYZ Limited gives consultancy services to organisations. Their principle expenses are offices, phone and broadband expenses. This is the business profit and loss account on the assumption they are not registered for VAT:

  • Sales: 40,000
  • Expenses
  • Rent: 6,000
  • Telephone: 1,200
  • Broadband: 240
  • Total costs: 7,440
  • Profit: 32,560

In the event that the business was VAT registered, all expenses included VAT

If the business was VAT registered, all costs included VAT and assuming all the customers were able to claim all the VAT back so pricing was not affected, the profit and loss account would now look like:

  • Sales: 40,000
  • Expenses
  • Rent: 5,000
  • Telephone: 1000
  • Broadband: 200
  • Total costs: 6,200
  • Profit: 33,800

The time spent finishing the VAT returns has expanded profits by £1,240 which equals £310 per VAT return.

With littler organisations (turnover up to £150,000) it is conceivable to utilise the Flat Rate Scheme. The point of this plan is to disentangle the consummation of VAT returns and diminish the stress over whether you can claim back VAT on your own purchases. With this plan, fundamentally a business could pay less VAT than it would under the typical VAT plans.

Everybody will have their own individual circumstances, so if you wish to speak to somebody, do not hesitate to contact us: