Vat Registration

If you’re subbing out enough work for it to make a difference to you whether your subbies are VAT registered or not how can your turnover possibly be under the VAT registration threshold anyway?

It never fails to amaze me the number of people on here who I KNOW are operating more than one vehicle & driver, yet there’s no VAT on the invoice when it arrives. How can you possibly run more than one vehicle and turn over less than £1300 per week? Even if your turnover is that low WHY would you want to pay two lots of running costs without claiming back the VAT?

Something I prepared last time this question came up: Should I be VAT Registered?

Posted under VAT

Posted by Alec at 8:53 am, April 8, 2008

8 Comments so far

  1. Alec added on  April 8th, 2008 at 17:23

    There are some complications to the FRS if you do European work. For example if you book your ferries and pay without VAT because you’re invoiced from France then you’d have to calculate the VAT on the ferry charge at UK rates and account for it on your return – so a £100 fare would mean you’d have to pay an extra £17.50 to the vatman.

  2. Alec added on  April 10th, 2008 at 22:09

    It’s the end cost that makes the difference Martin, not whether you (or they) are VAT registered or not.

    If I’m VAT registered your £1.00/mile is the same to me whether you’re registered or not.

    If I’m not VAT registered then your 85p/mile plus VAT costs me the same as A.N.Other’s £1.00/mile with no VAT.

    Conversely if I’m VAT registered and you’re not then you might find it harder to match the rate of the VAT registered guy – since he’s got a lower cost base than you because he can claim his VAT back.

  3. Alec added on  April 11th, 2008 at 08:01

    Mike, the point I was making about the ferry scenario is that under normal circumstances, as you say, you’d do a reverse charge for the VAT and then claim it back – 1 minute’s paperwork and £0 extra VAT liability.

    If you’re on the FRS though you’d still have to do the reverse charge but you can’t claim back the input to offset it. Your £100 ferry fare would attract an extra £17.50 VAT liability which you couldn’t offset.

    Similarly if you carried out work for companies registered for VAT in other EU countries and you invoiced them without VAT, as you’re meant to, then if you were registered under the FRS you’d still incur a liability of 9% on the sale even though you hadn’t received the 17.5%. In fact it’s possible (I’d need to check this, but it makes sense) that you’d be liable for 9% of the sale AND 9% of the 17.5% you didn’t charge. So a £100 sale attracts a liability of £10.58 even though you didn’t charge VAT on it.

    Obviously the FRS might be wrong for anyone that does a lot of work into Europe, or a lot of work for European customers.

  4. Alec added on  April 11th, 2008 at 08:27

    9% of your TURNOVER, including VAT.
    You charge £100+VAT for a job = £117.50. You then owe the VAT man £10.58.

    You make £6.92 (or 6 litres of diesel) profit for doing nothing.

    Ignore the Europe thing if it doesn’t apply – it’ll only give you a headache anyway.

  5. Alec added on  April 11th, 2008 at 08:37

    How does being VAT registered make any difference to claiming Tax Credits?

    Wonderful logic as ever Jeremy. You could achieve the same just by charging less, or doing less work, or buying a new van every 6 months, or working for TNT. Whichever way you did it you’d still be doing more work for the same money if you’re not VAT registered.

    The Tax Credit earner was to do with mileage allowances, not VAT.

  6. Alec added on  April 11th, 2008 at 09:06

    You’d need to be turning over less than £150,000 anyway Mark.

    The main drawback though is that you can’t claim back the VAT on your purchases except for capital items costing over £2,000.

  7. Alec added on  April 11th, 2008 at 14:37

    Offset against his taxable profit yes, not offset against the tax payable.

    That’s like saying it’s OK to pay an extra 17.5% for everything because it lowers your profits and keeps your tax bill down. It might be true but it’s a bloody stupid way of looking at it.

  8. Alec added on  April 11th, 2008 at 16:06

    £100 (not VAT reg), subbed out for £70 plus VAT (82.25) = £17.75 profit.

    £100 plus VAT (on normal VAT), subbed out for £70 plus VAT = £30 profit.

    £100 plus VAT (on Flat Rate Scheme), subbed out for £70 plus VAT = £24.68 profit.

    I think. Maybe Professor Smith could check my work when he wakes up?

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