VAT question

[alexwilliams]

Got it in one. You may well find in early periods that you actually receive a refund if your costs are higher than your sales - however when establishing which is best for YOUR business you need to look very much at your customers and if they can reclaim the VAT or not. That is to say whether or not it is a real cost to them.

As above registration is voluntary under a turnover of £68,000

So i don't claim back the VAT i bought on a product i just pay the difference, correct?

[James Smith]

No not quite.

You pay over the VAT over on your sales ("output" VAT)
You reclaim the VAT on your purchases ("input" VAT)

In terms of practicalities at the end of the quarter you work out whether you owe HMRC or they owe you. If for example you buy a lot of stock at the start it may well be you have a big reclaim. Ordinarily however it will be a payment to HMRC assuming you have a profitable business.

As I said up the top, big section on my book about VAT if you need some detailed examples and help with it, especially in terms of voluntary registration and understanding how this impact your profit which can be critical for a start-up.

[alexwilliams]

thanks for your reply.

Just confused me when the other guy said i claim the VAT THEN i give the tax man the difference between the two, but i dont. I claim the VAT back on products i purchased and give the tax man the VAT (output).

Just thought id give you a update on how my business is doing. First month i turned over £6,000, last month i turned over £20,000 and set to turn over around £22,000-24,000 this month.

Have a meeting with a family friend financial adviser in 3 weeks who's going to give me and my business partner some advice.

[LOS Design UK]

thanks for your reply.

Just confused me when the other guy said i claim the VAT THEN i give the tax man the difference between the two, but i dont. I claim the VAT back on products i purchased and give the tax man the VAT (output).

Just thought id give you a update on how my business is doing. First month i turned over £6,000, last month i turned over £20,000 and set to turn over around £22,000-24,000 this month.

Have a meeting with a family friend financial adviser in 3 weeks who's going to give me and my business partner some advice.

Well done you.

What you selling, 20p's

[James Smith]

Alex,

sounds like (assuming by "this month" you mean June), you will go over the threshold in July (cumulative turnover of more than £68k) which means compulsory registration by 1st September so not much choice although you can go for earlier registration if its advantageous. As it sounds like you have a decent business there, be happy to have a free consultation with you if you don't have an accountant - just drop me an email.

We service clients all over the UK so your location is not important and unlike most traditional accountants we do a lot with on-line businesses which I think from your earlier posts is what you do.

I imagine now you have proven the business model you will also be considering things such as whether or not you should be a limited company, preferably before you register for VAT as you will have to do it all again if you do it now as a sole trader which is a pain.

Anyway we deal a lot in this area should be able to assist with your growth as well as all the boring tax and compliance bits and bobs.

Regards,

[alexwilliams]

Thanks for your replys again

What are the advantages of going as a limited company? I didnt realise i had to pay income tax on my earnings. I believe registering as a limited company will reduce this income tax?

Just an off topic question, one of my competitors is based in New York selling to the UK, does he have to register for VAT in the UK because he is selling to this country?

[James Smith]

Alex,

Assuming you are tax resident based in the UK, all profits are taxable somewhere along the line.

If handled correctly a limited company can save you quite a bit of tax - £3-4k per annum as a "headline" rate assuming you are going to make £30-50k per annum plus there are lots of 'extra' tax benefits due to timing issues and other things you can do on entry/exit.

Other reasons are reduced personal risk through limited liability, but there is a big downside in terms of extra compliance. Its impossible to say what's best for you from a forum post but those turnovers looks pretty chunky so worth a think about at least. The business link website has some background about businesses strctures to take a look at, but don't do anything without proper advice.

As for your New York based competitor, theory and practice are not always the same but in theory if they are selling to UK consumers and its the "right" sort of product (different rules apply for some things) then they will well need to pay UK VAT. Often it will be slapped on when the goods arrive if its physical. If its electronically delivered then its complex but in essence its may still be due.

Hope that helps

Regards,

[wood1e]

From my experience going limited saves no personal tax, increases admin time and leads to corporation tax (if in profit)!!!

So on the whole greater tax and administrative burden along with higher accountants fees.

But as previous post states it is hard to say what is the best way forward.

I certanly feel if you are just starting out then stay self-employed, then if it all goes Pete Tong, you clear any creditors and walk away..

[James Smith]

From my experience going limited saves no personal tax, increases admin time and leads to corporation tax (if in profit)!!!

So on the whole greater tax and administrative burden along with higher accountants fees.

..

I would agree with all of that expect that the total tax should be considerably lower if you do it right. If you run a limited company BADLY, then yes you will pay more tax AND have the extra admin hassle AND pay more to the likes of myself to run it.

However if you run one properly then the tax savings should be at least 2-3 times the extra accounting costs. but you have to be profitable enough to make it work out if its mainly a tax driven incorporation.

[alexwilliams]

I have no accountant yet. I have a meeting in 2 weeks with a family friends finical adviser. He is going to show me what i need to keep for my books and i will be getting an accountant to go over them and sign them off for my VAT return. Advice on how much this will cost (accountant) ?