to vat or not to vat

[WorcsWuss]

Tax relief works against allowance, so to oversimplify, whether you're VAT registered or not, if you incur a cost of £100, you can offset that against your tax bill, reducing the amount you pay tax on, not the amount of tax you pay.

[GardenKit]

Tax relief works against allowance, so to oversimplify, whether you're VAT registered or not, if you incur a cost of £100, you can offset that against your tax bill, reducing the amount you pay tax on, not the amount of tax you pay.

If I reduce the amount I pay tax on then surely I pay less tax:confused1:

[WorcsWuss]

Sorry, yes, I got cut off! If you are taxed at 20% and you make a profit of £1000 and incur a cost of £100, you get taxed on £900, but it may be that you can't claim the full amount or at 20%...

[GardenKit]

Sorry, yes, I got cut off! If you are taxed at 20% and you make a profit of £1000 and incur a cost of £100, you get taxed on £900, but it may be that you can't claim the full amount or at 20%...

Cool, but I am a bit fed up with thread because of my inability to put my thoughts into coherent words, and coming across wrongly.

So I will shut up and be content as I am.

[muldonach]

Yes, I see where you are coming from. My first posting was to try to dispell the myth (imo) that it did not matter if you were vat reg as if you were not you could claim the total vat inclusive cost against tax and that would equate to claiming the vat back.

I still dont think it does, but am now so confused that "I am out":confused1:

 

Go back to the two identical firms in post #1

 

Picking figures out of the air assume running costs for each are £200/day, each also wants to make £200 profit per day.

 

Firm A is not VAT Registered so his chargeable rate is (£200*1.2)+£200 = £440/day

 

Firm B is VAT registered so they reclaim all VAT making their dayrate £200+£200 = £400 but they now have to apply VAT to the total which means they write an invoice for £480 of which £80 goes to HMRC.

 

The effect of reclaiming inputs and charging on ouputs is merely to pass the VAT on inputs along to the end user. You are quite correct that a non-VAT firm can offset the entire cost of inputs against profits, however that is not quite the same as being able "to claim it back against tax"

 

 

Cheers

mac

[chris corfe]

Ye I think thats right isn it?

[Fencing]

just to throw this in to the chipper,,, HMRC say you can claim VAT back on purchases (eg machines, tools etc) for upto 4 years prior to vat registration) anyone know anything about that???

[skyhuck]

just to throw this in to the chipper,,, HMRC say you can claim VAT back on purchases (eg machines, tools etc) for upto 4 years prior to vat registration) anyone know anything about that???

 

Any asset that you paid VAT on and still own when you go VAT registered you can claim the VAT back, not sure how many years you can go back.

[nick channer]

Any asset that you paid VAT on and still own when you go VAT registered you can claim the VAT back, not sure how many years you can go back.

 

thought it was only 6 months you can go back...

[Steve Bullman]

6 months for consumables I believe