VAT and how much you pay
Hi
Sorry to ask probably a silly question, but
I am just coming up to needing to register for VAT, what I would like to ask is,
Am I right in what I have read, the £85000 that is the threshold, do you have to
pay VAT on the £85000 and all above that figure, or just on the part that is above the £85000?
so if you take £100000 you pay 20% VAT on £15000
Thanks in advance
Carol
20 replies
Seller_qqCKaiyZvp4Rc
Found this after a quick google
When your turnover reaches the VAT threshold in a rolling 12 month period, you must start charging VAT from the first day of the second month after you exceed the threshold.
For example, if on 30th June 2021, your sales for the previous 12 months are £85,000, then your VAT registration date will be 1 August 2021.
When you expect to exceed the threshold in a single 30-day period, you must start charging VAT immediately.
Seller_DROodOAYHftnc
Also remember that the £85K is turnover, not profit.
Seller_DTufFoxJuMU0M
From you register you pay 20% vat on all products with a 20% vat code (which to be fair is most of them)
However you can deduct off any vat you paid to your suppliers etc (providing they were vat registered and you have a vat invoice)
To be honest you are best discussing this with an accountant, as there is extra paperwork, quarterly vat returns, reverse vat, etc etc
Seller_esvgLzKXw2YAl
I’m sorry to say, but you are very wrong in this.
Once you register for VAT, you charge vat on ALL of your vatable sales.
So whether you sell £10 above the threshold or £10000 above the the threshold, you charge vat on all of the sales you make. Except zero rated items.
I’d strongly suggest that you go an peruse the HMRC website and learn about the basics of how it all works.
I’d also strongly suggest, that if you don’t already, engage an accountant as they will guide you as to which scheme to use and will save you money overall.
Seller_DTufFoxJuMU0M
And remember that the VAT threshold is based on a rolling 12 months, its not a tax year.
So for this month you need to be checking your turnover from July 2021 to June 2022, then next month you need to watch August 2021 to July 2022 etc
Seller_KK9ufOGOvqre3
VAT calculation example, from 85000 at 20% is:
85000 / 1.2 = 70833.33 Netto sale
85000 - 70833.33 = 14166.66 of VAT
70833.33 + 20 % = 85000
Take in the mind, that £85000 threshold, apply to turnover not to the profit
Seller_lhG3Y690i4Qj9
VAT is an added TAX, your not paying it, the customers are, you are just a collector of the TAX for HMRC.
As a collector of the TAX you get to use the VAT collected as cash flow for until you have to give it to HMRC.
If your total sales are £80,000 now (not VAT registered and unable to claim back the VAT paid on all purchases, Amazon fees, eBay fees, post, packaging etc etc) when you are VAT registered the VAT is added to the sale price of each item so your total sales would be £80,000 + VAT = £96,000.00 (which includes the £16,000 VAT you have collected for HMRC)
To keep it simple if you spend £50,000 (inc £8,333.33 VAT on products, fees, post, packaging etc) to turnover £80,000 a year you have £30,000 left and have given the VAT man £8,333.33 which you are unable to claim a penny of back.
If you spend the same £50,000 (inc £8,333.33 VAT on products, fees, post, packaging etc) and turnover £96,000 (£80,000 + VAT) you will have collected £16,000.00 VAT on sales but you can claim back the £8,333.33 you have paid on purchases so you would pay HMRC the difference which is £7,666.67 for the year leaving you with: £38,333.33.
£96,000 gross sales = £16,000 vat collected (to be paid to HMRC) = £80,000.00 net sales
£50,000 gross costs = £8333.33 vat paid (to be reclaimed from HMRC) = £41,666.67 net costs
You probably can’t simply ramp everything you sell up by 20% so if we use the 7% figure suggested earlier you would have:
£85,600 gross sales = £14,266.67 vat paid (to be reclaimed from HMRC) = £71,333.33 net sales
£50,000 gross costs = £8333.33 vat paid (to be reclaimed from HMRC) = £41,666.67 net costs
This would leave you with £29,666.66 which is only £333.34 shy of the £30,000 you had not being VAT registered and having to restrict sales/profit/growth to stay under the threshold
Seller_zRPTFpBVvbeGv
You won’t have any historic liability, for your first rolling £85k, it will only apply to sales once you’re registered (over £85k rolling).
Once you’re registered however, ALL sales are liable for VAT.
Seller_0jWlqgUh2docO
my advice to you, get an accountant
he will be best placed to advise you on the current VAT rules and regs and my also save you some money in the long run as when you go registered, there is a period where you can claim for VAT paid for goods/equipment purchase made within a specific timeframe, but this may have changed, so see an accountant
Seller_JYKn2hm0b4PgN
You start from zero once you reach £85k, if you think about it C&E expect you to charge VAT on goods and deduct VAT on purchases per quarter and pass that on to them. If you have not been charging VAT on your sales (because you don’t need to) then you have nothing to pass on the C&E.
Remember you can also claim back any VAT you have paid on assets and stock that is still in the business when you register - so your first VAT return will probably be a refund - beware though the same is the case if you de-register - you have to give the VAT back you have claimed on any assets and stock that you are still using in the business.
Only go down this road if you feel that your sales will stay on this trajectory and go up - if not then you won’t need to register yet. It’s best avoided if you can.
Hopoe this helps
Jo FCCA
