Voluntary VAT registration

[DSM10000]

I am posing this on behalf of a friend as I know there are a great many knowledgeable members on the forum.

We have a friend who is an "Artisan baker" mainly producing specialist cakes.

She thinks it would be useful to voluntarily register for VAT as she is looking to lease a van through her business . Unfortunately her accountant is pretty useless and with pressure of work and two sick parents does not have a great deal of time to fully investigate at the moment.
What she would like to know is:

Can registration be backdated an if so by how much?

Can VAT be reclaimed on goods etc bought in without charging for it on sales?

How often must accounts be submitted?

Thanks in advance.

 

[Dryce]

You can go back quite a bit depending on whether it's goods or services.

https://www.gov.uk/vat-registration/purchases-made-before-registration

However beware of registration.

Once registered your friend is effectively going to be charging 20% on top of their own services. Unless dealing with VAT registered customers and/or VAT reclaimed on bought in materials and services is significant that means they'll effectively just be paying more tax.

Accounts are generally submitted quarterly. There is an alternative flat rate scheme which is based on paying a % of turnover. You are due to paty VAT on invoices even if you do not get paid - unless using the cash accounting scheme.

Yes VAT can be claimed on goods separately from sales.

I would add: your friend needs advice before registering if these basic questions have to be asked in this forum.

 

[Charles Morgan]

I recall the immortal battle to establish the VAT status of Jaffa cakes - if cakes, no VAT to be charged, if luxury biscuits, full VAT. In the end they were found to be cakes not biscuits. Food sales (in most cases) are VAT Free.

She should get proper advice.

 

[wemorgan]

I'm no expert, but here's my thoughts:

She's primarily selling goods. Can her buyers afford to have prices +20% VAT?

I'd hope her profit is by value added. ie. buy ingredients and turn in to cake. Therefore it may be more profitable to buy ingredients inc VAT, then sell cakes without VAT. She'll be ~20% cheaper than the competition who do pay VAT

Leasing cars/vans through the company is not necessarily the money spinner it may seem. What's her business mileage? Will the van be used for personal use too? Will BIK be applicable? I'd buy a cheap car personally and claim the 45ppm as a business expense.

VAT can be back dated. I don't know by how much. 12 months I'd guess

VAT must be added to sales.

VAT is submitted every 3 months

You have to register for VAT once your turnover reaches a threshold of £81k.

 

[Bellow]

Once registered your friend is effectively going to be charging 20% on top of their own services. Unless dealing with VAT registered customers and/or VAT reclaimed on bought in materials and services is significant that means they'll effectively just be paying more tax.
.

She's primarily selling goods. Can her buyers afford to have prices +20% VAT?

I'd hope her profit is by value added. ie. buy ingredients and turn in to cake. Therefore it may be more profitable to buy ingredients inc VAT, then sell cakes without VAT. She'll be ~20% cheaper than the competition who do pay VAT

A friend who saw out his working days as a joiner/handyman who with previous businesses had been VAT registered swerved it to save adding (then 17.5%) to his invoices for his customers who were predominately non VAT registered members of the public obtaining house repairs. This worked for him as he merely handed the VAT charged on materials to his customer, the materials being the lesser component of the final invoice - his labour predominating.

 

[DSM10000]

She should get proper advice.

That has been my advice.

At the moment she has both (divorced) parents in different hospitals with similar conditions (stroke or similar, neither fully diagnosed) and is trying to juggle many things without the headspace to process any of it!

Thanks.

 

[Deleted member 37751]

My experience of VAT tells me that she needs to be VAT registered like she needs a hole in the head; her prices will go up by 20% just so she can claim £100 a month back on a leased van.

In return for my excellent advice I require a chocolate fudge cake in return.

 

[DSM10000]

My experience of VAT tells me that she needs to be VAT registered like she needs a hole in the head; her prices will go up by 20% just so she can claim £100 a month back on a leased van.

In return for my excellent advice I require a chocolate fudge cake in return.

Lee,

The chocolate brownie is much better, two and half bars of 70% chocolate in each one!!

 

[daveenty]

Some good advice here, and a common theme of seek professional advice before committing to registering.

I deal with quite large companies in my business, so VAT is not an issue. In fact some insist upon it before you can deal with them.

If I was dealing with the public however, I'd be doing my utmost to avoid reaching the threshold for registration.

 

[paulshep69]

As wemorgan correctly states, unless she's turning over £81k, there is no need to register for VAT.

On the contrary to SPX, VAT for me (Limited company) is worth an extra 9.5%, I claim 20% VAT on my invoices but pay only 10.5% VAT on the flat rate scheme - winner.

 

[Charles Morgan]

Some more reading - her inputs being mostly food are zero rated, and cakes are zero rated for sale - it is entirely possible that with that being the case a VAT registration might be refused.

 

[bolide]

She needs a new accountant before making any other decisions

The one thing she must be aware of is that the VAT threshold is calculated over a rolling 12-month period. My understanding is that if, at any time, she exceeds the threshold in any 12-month period she becomes liable for VAT in that period, meaning the VAT man will want a cheque for 20% of her sales, assuming her sales are not zero-rated

It's a good idea not to overlook this

Nick Froome

 

[Red C220]

The upside of VAT registration would be completely outweighed by the downsides.

She can still lease a van through the business but simply put it through at the gross amount and not reclaim VAT but offset this all against corporation or income tax depending on her status.

In the real world there's isn't a great deal of upside to VAT registration unless you're dealing business to business.

Even if she did register, there are a choice of schemes available to her on which it would be prudent to take professional advice.

However, having dealt with VAT for a number of years I'd say even with the little information provided here she's better off giving it a swerve and only considering it should her turnover warrant registration which is currently £81,000 pa.

 

[bolide]

Some more reading - her inputs being mostly food are zero rated, and cakes are zero rated for sale - it is entirely possible that with that being the case a VAT registration might be refused.

Does HMRC have any grounds on which to deny a registration? If her Output VAT is zero, and her Input is not, she should register to claim back the VAT she has paid. AFAIK she is entitled to

Then she could claim the VAT back on the bills from her accountant who doesn't understand VAT

Nick Froome

 

[bolide]

The upside of VAT registration

There's an upside???

she's better off giving it a swerve and only considering it should her turnover warrant registration which is currently £81,000 pa.

That's a lot of cakes!!

Nick Froome

 

[Red C220]

There's an upside???



That's a lot of cakes!!

Nick Froome

The only upside for us is getting an EORI number so it makes importing a whole lot less hassle.

Other than that you're just an unpaid tax collector!

We'd be sensible to operate the American system of sales tax that is only levied at point of retail, no paying and reclaiming nonsense and an immediate eradication of carousel fraud.

Around 1600 a cakes a week at a £1 each and she'll need to register!

 

[dinoy]

if u want to claim u need to be registered with VAT no, although cakes food do not attract, if she does outside catering services she can charge + vat

u can volunteer and ask for registration to claim vat on many things being charged to the business.

but no vat can be invoiced until vat no given, and need to be included on invoices once given.

but hmrc like u to register as u need report quarterly and open the door for periodic cheques.

as everybody said need to sit with accountant to work the best way forward as the expenses will increase and paperwork, sometime forgoing claiming is better than claiming little.

it is what the business planning to do into birthday parties catering for example in which case the service can attract vat, but food supplied might be zero rated. but costs accountant mobile petrol and other expenses can be claimed against

2 pennies thrown in

 

[janner]

I'm no expert, but here's my thoughts:

VAT can be back dated. I don't know by how much. 12 months I'd guess..

This is why you have to be careful asking on internet forums.

You don't really give enough info. If you're talking about someone who makes specialist cakes, such as wedding cakes, for sale to the general public and the turnover is less than 81k then I would say no, don't register for vat.

If the person is selling to a vat registered shop then, yes, register for vat.

Unfortunately her accountant is pretty useless...

Accountants are plentiful and cheap. Even a very small business should use a good one.

 

[daveenty]

Accountants are plentiful and cheap. Even a very small business should use a good one.

A good accountant should save you more than they cost you.

The bad news is, you don't know that you have a bad one till you get a good one. I learnt this the hard way.

 

[bolide]

We'd be sensible to operate the American system of sales tax that is only levied at point of retail, no paying and reclaiming nonsense and an immediate eradication of carousel fraud.

Amen to that

When you think about the almost incalculable number of VAT transactions that take place, every one of which has to be accounted for by every business in the chain, it's a ridiculous system

From 2015, if you sell downloads (music, software, etc) to EU countries from the UK you need to charge VAT at the prevailing rate for that territory (the EU has lots of different VAT rates), store two pieces of uniquely identifiable pieces of information for each transaction and keep records for 10 years

HMRC has set up a "simple" system to pay the VAT to them but it doesn't let you claim input VAT. It's a kind of lose - lose system for UK sellers

Sadly I don't think the EU is likely to change the system


Nick Froome