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The Book-keepers Forum -> VAT, Payroll & Tax -> VAT - registering/de-registering - up and down and up and down
Post Info TOPIC: VAT - registering/de-registering - up and down and up and down
Peasie


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VAT - registering/de-registering - up and down and up and down
 

Ok - I have a client whose turnover was over £73,000 in February 2012 so they had to register for VAT from 1st April. By this time the threshold was £77,000 (de-registering threshold £75,000). They buy food at zero rate and now have to sell it at standard rate. They have said they can't put the prices up anymore as they'd lose all the custom - so in effect they are absorbing the VAT.

This will mean for the twelve months to the end of April 2012 they will be below the de-registration threshold.

What should they do?



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MarkS


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Hi Peasie

You only need to register for VAT if you are continually over the threshold.

If you go over the threshold and you can show that with your best knowledge that it will be a temporary thing then you dont need to register.

Although if you are proved to be wrong and you are continually over the threshold then you will have failed to register at the correct time and will be penalised accordingly

Regards

MarkS



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Peasie


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The thing is though, if there was no VAT threshold and they didn't have to register for VAT, going by the sales from previous years and the increase in prices from October, the sales would climb to around the £80,000 mark. But because they will be absorbing the VAT, it means their sales will be reducing when they register. They are caught out with this threshold.

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Don Tax


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Can they start promoting cold food more heavily than at present, or some other income stream that minimizes the buying at zero and selling at standard rate.
Tim



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Spamkebab


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But that means changing your business because the government more or less told you to Tim. That's all kinds of wrong.

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Don Tax


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Hi Neil,

Must be the recent controversy because I presumed it is a food business and Peasie hasn't even mentioned pasties. I suppose the Government have got to set the threshold somewhere but but last time I looked at European ones, most were set so low they were only exempting hobby's or pin-money businesses. The problem is the high rate of VAT. At 10%, the threshold wouldn't alter behaviour very much, but at 20% and selling to the general public you'd be better off doing a 4-day week.
Tim

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MarkS


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Hi Peasie

Yes see what you are meaning.  The sales value to the customer irrespective if they are VAT registered or not is £80k.  If they are not registered they get to keep the £80k.  If they are registered they keep £66.67k and pass £13.3k onto HMRC.

Unfortunately VAT doesnt take into account when the business absorbs all the VAT.  It is set up to work as the VAT rate will be added onto the net sales price.

My advise would be if they are just going to be over the VAT threshold and they arent going to increase prices and will absorb all the VAT then to price their goods so that they come just under the VAT threshold in any 12 months.  It is better to have sales of £76k and keep it all rather than have sales of £80k and have to register for VAT and only keep £66.67k.

 

Regards

 

Mark



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Providing bookkeeping, accounting and taxation services to small and medium sized businesses.
 
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