Vat Question

[itsmefolks]

Sorry if this is the wrong place. I`ll post elsewhere just for chance!!
Can anyone help with a vat question?? I have a small business in retail. I am Vat registered but to be honest don’t understand how it works!! Turnover last year took the business into the VAT level and I understood it was simple according to my accountant! Anyway we bought goods inc vat, sold goods including vat and then got a vat bill from HMRC for vat!! I aint a clue folks!! I have asked the accountant and all I hear is gobbley gook!! Can anyone explain in plain English why we seem to be paying something that we were supposed to be able to “claim back”

Cheers in advance.

[ummmm]

You charge VAT on sales and claim back VAT on purchases. You pay HMRC the difference or look for a refund for the difference.

[Quoi]

VAT stands for value added tax. It is a tax on the value you add to your products.
if you buy something for 10.00 + vat (12.50) and then sell it for 30.00 + vat (37.50) the value added bit is the 20.00 profit you made.
so you claim 2.50 vat back and pay out 7.50 in vat.
The government takes the 5.00 difference which is the vat on the profit you made ( 20.00).

clear as mud?

[themorrigan]

you buy something wholesale for £10 inc vat -you can claim back on your quarterly vat form 20% -£2.00
you sell the same item for £20 -this included vat at 20% -you are collecting this sum for the government.
When you do your quarterly report there are two boxes -one for the VAT you have paid for on goods bought for your business -lets say that sum is £2000 and one box for the vat you have charged on the goods sold -lets say that is £2700. You take away the amount you have paid on business goods from the amount you have collected and this sum you either pay to the government, or claim a refund, depending if it is a negative or positive number. In the above example you would be £700 you would be paying to the government. The amount of vat on the things you sell does not belong to you -its not an input its a tax you are collecting . You are allowed however to claim back all the VAT on eligible goods and services bought for you business (including fuel you use).

[themorrigan]

Quoi -that information is totally incorrect -sorry :-). VAT has nothing to do with your profit

[kevincharley]

You pay VAT (tax) to HMRC on the items you sell. You claim back VAT (tax) on the items you purchase. I assume you are selling at a higher price than you are buying therefore there is more VAT to pay than to reclaim. Unless the goods/service you supply is zero rated or exempt from VAT I'm afraid you will always have to stump up the difference between sold and purchased. I've known people divide their business into separate companies to keep under the threshold - e.g. a general builder could go above the threshold but if he had 2 companies, say Joe Bloggs Builders and Joe Bloggs Plasterers then the turnover would be less per company therefore avoiding the claws of HMRC. (this was some years ago and HMRC may have tightened up on that particular scenario) It might be worth talking to a different accountant.

[themorrigan]

kevincharley, very true what you say but it depends on the business if being VAT registered is good or bad. If you use a lot of fuel in your business, deliveries for example, you can claim 20% of all fuel bills. If you have an office at home you can claim up to 30% on taxable services -phone bill for example and heating bills. If an accountant talks gobbledygook then I'd change your accountant.

[McMouse]

ummmm has explained it. That's how it works.

[Old_Geezer]

They like to claim it's added value, but we all really know it's added cost. I guess they didn't like the thought of a CAT. Or a PAT even.

[themorrigan]

McMouse -not exactly - you can claim back VAT on taxable inputs such as fuel, stationery, advertising, website admin, phone,mobiles,lots and lots, not just the VAT you pay on the products you buy to sell on.

[ummmm]

You still 'purchase' those things.

[nannybooby]

itsmefolks, the HMRC used to run free day courses in most regions why not call your office and ask them if they are still available.

[ummmm]

My local office still run courses.

[chas2008]

people come unstuck by spending the VAT or assuming its part of the sale, it should be accrued/shown separately in effect it costs you nothing.As said you can also claim it back on purchases for use in the business.
When you have a company that is labour orientated you can get mega VAT bills as there is very little to claim back, but again it shouldnt be spent in the first place unfortunately many small businesses do.

[sfby]

themorrigan - if goods are £10.00 including VAT, then the VAT element is not £2.00, it's £1.67

[themorrigan]

sfby -yes it should have read ex vat. When you buy wholesale the goods are ex vat and you pay the vat on top of the listed price.

[LCDMAN]

I'll try to make it straightforward, without being patronising, as I understand it.

It's all about the difference between (a) the total of the VAT paid on goods & services you bought (everything purchased - goods for re-sale, office supplies, other materials, utilities etc.) and (b) the total VAT you charge your customers for the stuff you sell.

If (a) is less than (b) then you pay HMRC the difference, if (b) is less than (a) then they give you a "refund" of the difference (or just carry it forward to the next VAT quarter).

Basically you are acting as a tax collector for HMRC and collecting the VAT on their behalf for the stuff you sell to your customers. You get to take off any VAT you paid out on stuff you bought, from this figure.

Make sense to you?

[DaisyNonna]

Why do I now have to pay VAT on storage facilities? A recent add on.

[Prudie]

Very simply the total VAT you charged on the stuff you sold is greater than the stuff you bought including VAT (which is what you can claim back). You will always get a VAT bill unless you're paying out more than you're selling.

[chas2008]

or you are exporting outside the EU