i need some advice on vat registration

[Anonymous]

Im self employed with a major parcel carrier.
They want us to be vat registered. I only turn over 50k per year.
Can they make us be vat registered.
Also would it be worth it for me or would i end up owing the tax man lots of money. My fuel only comes to £700 per month. I invoice £1000 per week then obviously it would be plus 20% vat = £200.
With the add on of extra purchases like van maintenance and suchlike am i looking at a heavy vat bill or what?
please help.
Mark .

[Marie Stein]

Hi Mark

Well nobody can tell you whether or not you have to be VAT registered if your turnover is below the registration limit, it’s up to you to decide whether it’s worth it and in your position, I’d be asking the company to explain why they want you to register.

But in practice, it might actually save you some money and they may be hoping that you will pass some or all of the saving back to them in reduced costs. Here’s how it works:

You would charge VAT IN ADDITION to the weekly £1k that you invoice the company. This is your output tax. So that means that you invoice for £1,200 instead of £1,000.. You pay the £200 to HMRC. So there is no cost to you on the sales side.

But it might save you some money on the purchases/expenses side as you can claim back the VAT on the cost of your van maintenance, petrol and other business expenses. This is your input tax. So if you pay £20,000 in expenses each year plus £4000 worth of VAT, you could recover this VAT and this would be a real saving to you. Obviously I don’t know how much VAT you incur on your costs, but claiming the VAT back could be a real bonus.

The way it works is that you submit returns, normally every 3 months, where you pay the VAT on your sales (eg if 13 weeks x 200 = £2,600) less the VAT on your purchases and expenses (eg £1,000). You’ve charged the £2,600 output tax to the company and you get to retain the £1,000 input tax so you pay the balance of £2,500 to HMRC.

So you can see that there could be a real benefit to you by registering. The issue is whether or not they expect you to pass that saving back to them!

Registering for VAT does, however, mean that you are liable to submit returns and retain certain records, so there is additional admininstration work involved for you, unless you pay an accountant or book-keeper to do the return for you. But it’s still your responsibility and you are liable to pay the VAT to HMRC and submit returns on time, even if you pay someone else to do it for you.

There are some special schemes to help small businesses with VAT that can also reduce the VAT that you pay to HMRC and it’s worth having a chat with an accountant to see how it would work for you in practice and help you decide. In particular the VAT Rate Scheme often generates really useful savings for small business owners.

If you don’t already have an accountant, then ask around for a recommendation (someone is bound to be able to recommend one) or look in your local yellow pages. Many accountants will give a prospective new client a free initial consultation, but otherwise you should be able to find one who will advise you on basic issues for a relatively minimal fee, perhaps around £100 an hour or less.

I hope this helps. I know it’s a big subject to deal with and there is a lot of information available about VAT online. See our own “Introduction to VAT” which is a very short summary of how it works. Also there is a lot of stuff on the HMRC website. But I’d really recommend having a chat with an accountant, I’m sure you’ll find it’s worth the investment.

Marie

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