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collect-them-all
Community Member
Posts: 5
Registered: ‎28-03-2012

Practical tips for staying under the VAT threshold please?!

I've been trading for almost exactly a year and to my horror I've discovered I'm only £2 away from the VAT threshold! So I need to take action now. Despite turning over nearly £77K, I haven't made a huge profit as I do big volume sales for very small margins. If my next trading year is the same as my previous trading year, I will end up giving 50% of my profit to the VAT man and be left with barely anything for my children and I to live on - the tax credit system take my net profit figure as my income which doesn't take my VAT bill into account. So I feel that my only option is to make sure I keep under the threshold but I don't know how to go about this without destroying everything I've worked so hard to buid up. So I wondered how do other sellers go about keeping under the VAT threshold. At the moment I come top of the lists on searches for my products - how long could I shut before I'd lose everything? All my best match credentials, my top-rated seller status - I wonder how long it would take for me to fight my way to the top of the listings again - I worry that there is so much competition for my products that I would never regain my position. Ahhh I don't know what to do! Has anyone else been in a similar position?

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ooldbaker
Community Member
Posts: 377
Registered: ‎10-09-2006

Re: Practical tips for staying under the VAT threshold please?!

in reply to collect-them-all

Not sure what is the best way to reduce your turnover (putting prices up a little might help) but


 


"the tax credit system take my net profit figure as my income which doesn't take my VAT bill into account".


 


Is wrong. 


 


When you register for VAT your sales and costs will all be calculated net of VAT so your profit may well be smaller but the tax credit system will recognise this.

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collect-them-all
Community Member
Posts: 5
Registered: ‎28-03-2012

Re: Practical tips for staying under the VAT threshold please?!

in reply to collect-them-all

Thank you very much for your reply - I was going to use the flat rate system so I assume that my profit wouldn't be calulated net of VAT?

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crazycats2010
Community Member
Posts: 311
Registered: ‎17-07-2012

Re: Practical tips for staying under the VAT threshold please?!

in reply to collect-them-all

Sounds like your options are stop trading until new VAT year (is that same as tax year?). Which keeps your outgoings as whatever you have while not bringing in income.


 


Or hit the limit, register and then claim the VAT you pay back while paying the VAT due on your products from then on.


If your margins are so low that the 1/6th VAT is half your profit then you have bigger problems than VAT.


 


Perhaps professional advice about which VAT scheme would suit your type of business best may be of use. Flat rate doesn't suit every new VAT user.


We just use normal (not flat rate) and pay whatever bill quarterly. Well, not us as such, buyers pay it we just collect the 1/6th money on HMRCs behalf and send the lump sum.


 


 

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ianwhorlow
Community Member
Posts: 5,468
Registered: ‎26-04-2008

Re: Practical tips for staying under the VAT threshold please?!

in reply to collect-them-all


Sounds like your options are stop trading until new VAT year (is that same as tax year?). Which keeps your outgoings as whatever you have while not bringing in income....


 


 


There is no VAT Year. You need to reister for VAT if you exceed the threshold for any rolling 12 month period.

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ianwhorlow
Community Member
Posts: 5,468
Registered: ‎26-04-2008

Re: Practical tips for staying under the VAT threshold please?!

in reply to collect-them-all

"reister" should be "register" :8}

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ooldbaker
Community Member
Posts: 377
Registered: ‎10-09-2006

Re: Practical tips for staying under the VAT threshold please?!

in reply to collect-them-all

Thank you very much for your reply - I was going to use the flat rate system so I assume that my profit wouldn't be calulated net of VAT?


 



Under the flat rate scheme your profit is calculated roughly as 


 


(gross turnover - flat rate vat payable) - gross purchases and expenses.


 


It is possible to work it out in other ways but one way or another the VAT you pay has to be deducted from the gross sales before getting to your profit figure.


 


see 'accounting treatment' http://www.raymondbenn.co.uk/guides/Guide%20to...the%20flat%20rate%20scheme.pdf


 


 


 

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collect-them-all
Community Member
Posts: 5
Registered: ‎28-03-2012

Re: Practical tips for staying under the VAT threshold please?!

in reply to collect-them-all

Thanks for your reply - I think though that's abit harsh about my profits! In my first year of trading 20% of my turnover has been profit and considering how many 99p things I sell, I'm happy with that, very happy. I've remembered that on the flat rate scheme, I get a 1% discount so I'd only pay 6.5% VAt but if I did similar numbers over the next trading year, that would still be just under a third of my profit swallowed up in a VAT bill. It's not my profit margins that are the problem, it's the VAT system that SUCKS. I've spoken to a couple of accountants today and they said unless I can increase my turnover to 120K or more pretty quickly, it is better to stay under the limit because turnovers in between get disproportionately hit with VAT. But I'm selling something that's a passing fad, if I don't get it off my hands, I could quite easily get lumbered with it and if I shut my shop for two months in order to get well under the threshold, when I open again, it will be like starting the business from scratch with no top-rated status, no fees discounts, maybe even lose my Royal Mail business account if I'm not posting anything so ...I just don't know what to do for the best. Getting my turnover over 120K when I work at night just doesn't seem possible to me.

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ianwhorlow
Community Member
Posts: 5,468
Registered: ‎26-04-2008

Re: Practical tips for staying under the VAT threshold please?!

in reply to collect-them-all

OP, if you have been trading for almost a year and you are only £2 off the threshold and you are currently selling then it is too late. Surely you need to register now.


Also note as i mentioned above it is measured on any  rolling 12 months, not the financial year.

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ooldbaker
Community Member
Posts: 377
Registered: ‎10-09-2006

Re: Practical tips for staying under the VAT threshold please?!

in reply to collect-them-all

I would think you might be better off slightly without adopting the flat-rate scheme. It is certainly worth checking. Either way the above advice re registering quickly and your advisors about the higher limit is right.


 


More work in the standard VAT but if your profit margins are narrow you might end up paying less.That and a small price increase and less tax to pay might be a solution somewhere.


 


VAT wouldn't be a tax if someone didn't have to pay somewhere.

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dearnevalleytools
Community Member
Posts: 172
Registered: ‎30-10-2008

Re: Practical tips for staying under the VAT threshold please?!

in reply to collect-them-all

Hi OP,


If you work nights and earn £15+ on ebay and claim working tax credit ,I would say your biggest worry if you have not informed the WTC is how much WTC you are going to have to repay.As you need to inform them about your increase in earnings.


Frank 

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1000flagsuk
Community Member
Posts: 176
Registered: ‎07-07-2006

Re: Practical tips for staying under the VAT threshold please?!

in reply to collect-them-all

If you go to the flat rate scheme and then in the future become a partnership under the flat rate scheme you get a discount again of 1% on the flat rate vat. That may be useful when planning ahead. One thing to work out is how many of your sales are outside the eu and the uk as if you eventually become a limited company you benefit from these sales to these countries as no vat is chargeable. In your position I would be inclined to work out what your tax liabilities would have been if you traded as a vat registered company and a limited company. That will open your eyes and help you choose the correct route going forward.

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click4fashions
Community Member
Posts: 451
Registered: ‎01-09-2011

Re: Practical tips for staying under the VAT threshold please?!

in reply to collect-them-all

Is it not the case that if any rolling 3 months turnover meets the VAT threshold (pro rata basis) that a business must register? In effect the VAT man assumes that if the turnover in a 3 month period projected forward hits the VAT threshold then the business must become VAT registered.


 


Not sure though because when we became VAT registered we clearly knew that our turnover would be well in excess of VAT registration.


 


 


 

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crazycats2010
Community Member
Posts: 311
Registered: ‎17-07-2012

Re: Practical tips for staying under the VAT threshold please?!

in reply to collect-them-all

Wow, £77k turnover while working the business part time is impressive in your first year.


What could you do full time on the business?


 


No point complaining about the VAT threshold, we all come across it (above or below). You become a collection arm of the government. Government set it, government want it collected.


 


Sounds like you choose not to avoid the limit (and few would think of shutting down business for so long), so have to work out how to deal with the payments.


You do have options. May not be particularly pleasant options and some you may dismiss out of hand but there are options.


And government will get the money you are collecting for them. One way or another.


 


 


 

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ianwhorlow
Community Member
Posts: 5,468
Registered: ‎26-04-2008

Re: Practical tips for staying under the VAT threshold please?!

in reply to collect-them-all



Is it not the case that if any rolling 3 months turnover meets the VAT threshold (pro rata basis) that a business must register? In effect the VAT man assumes that if the turnover in a 3 month period projected forward hits the VAT threshold then the business must become VAT registered.


 


Not sure though because when we became VAT registered we clearly knew that our turnover would be well in excess of VAT registration.


  


 


From the HMRC site:-


 


"Supplying goods or services within the UK. If your turnover of VAT taxable goods and services supplied within the UK for the previous 12 months is more than the current registration threshold of £77,000, or you expect it to go over that figure in the next 30 days alone, you must register for VAT. However, if your turnover has gone over the registration threshold temporarily then you may be able to apply for exception from registration - see the section later in this guide for more information.
There is a section later in this guide on calculating your VAT taxable turnover....."

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crazycats2010
Community Member
Posts: 311
Registered: ‎17-07-2012

Re: Practical tips for staying under the VAT threshold please?!

in reply to collect-them-all

The question becomes how long is temporary.


Few days may be classed always as temporary. Is a few months however?


And most new businesses start small and grow, so month 13 could be expected to be higher turnover than month 1, month 14 higher than month 2 etc - so how long is temporary when shutting shop iis decided against?

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1000flagsuk
Community Member
Posts: 176
Registered: ‎07-07-2006

Re: Practical tips for staying under the VAT threshold please?!

in reply to collect-them-all

One of our friends who sells cut Christmas trees does exactly that. 94% of his income is in December and 5% in November and 1% in October. He cuts enough trees to ensure he does not fall inside the VAT limits and when he has done that he packs up and puts his feet up.....well not entirley he does have to trim and feed trees through the year, but in terms of selling, when he reaches his lmit that is it for him. Each year if demand is good he just increases his prices, sells less at more margin. The taxman seems happy at what he does but he does speak to them each year

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ianwhorlow
Community Member
Posts: 5,468
Registered: ‎26-04-2008

Re: Practical tips for staying under the VAT threshold please?!

in reply to collect-them-all


The question becomes how long is temporary.


Few days may be classed always as temporary. Is a few months however?


And most new businesses start small and grow, so month 13 could be expected to be higher turnover than month 1, month 14 higher than month 2 etc - so how long is temporary when shutting shop iis decided against?



 


You make the application for exception from registration giving all the information you have. The VAT office will make the decision. However it is of course worth bearing in mind that if you then subsequently exceed the limit for several periods of 12 month rolling you will then need to advise the VAT office and may be liable for previous months.;-)

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ianwhorlow
Community Member
Posts: 5,468
Registered: ‎26-04-2008

Re: Practical tips for staying under the VAT threshold please?!

in reply to collect-them-all

Forgot to say that the most important thing to do right now is pick up the phone and talk to the VAT office about your situation. They will advise you .

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suesperformanceparts2012
Community Member
Posts: 12
Registered: ‎01-09-2012

Re: Practical tips for staying under the VAT threshold please?!

in reply to collect-them-all

Also remember when you are vat registered you get to reclaim the VAT (on the purchase cost of your products, stationary, elastoplast you have to buy cos you're sticking down so many envelopes your fingers bleed etc) - if you bought it to use in your business/resell the vat is usually reclaimable

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