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Voluntary VAT Registration

Following on from my earlier question about directors' dividends, I am uncertain as to the benefits of voluntary registration for VAT. I haven't been able to determine from the HMRC website what they may be, so wonder if this community might be able to indicate what, if any, are the benefits of vountary registration.

Thanks,

Ollie

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The main benefit is that you can reclaim vat on your inputs

If you only sell to Vat registered traders then I can see no disadvantages. The Vat that you charge your customers will be recaimable by them. Additionally, you will be able to reclaim Vat on all your allowable purchases and expenses.

Where all or some of your customers are non-Vat registered, then you have to make a judgement. The Vat that you charge them will simply represent an increased cost. Are you likely to lose business because you prices are 20% higher?

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Come on, do your own homework

Think about Zero rated traders - who are they? What inputs do they have?

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Unqualified!

Hi Chris,

Thanks for your charming response. I am not an accountant and had been making heavy weather of the labrynth that is the HMRC website, hence turning to this forum for a 'leg up'. I am afraid I am not familiar with zero rated traders nor their inputs.

The introduction to this forum suggests "Got a burning question that you’d like to put to the accounting community? Then post your question on our interactive forum and tap into the collective wisdom of more than 90,000 AccountingWEB.co.uk members here on Any Answers." It seems, unfortunately, I'd misjudged the 'climate' in this community, and for that I apologise.

Ollie 

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Few inputs

Hi SteveOH,

Thanks for your reply. As a 'knowledge worker' there are few things I buy (maybe a new laptop every so often) in order to operate my business, and their cost is negligible compared to the income, so whilst claiming back VAT would of course be beneficial, it won't make a marked contribution to cashflow.

However, I was told once (in an informal setting) that companies that are voluntarily VAT registered do not pay the full sum back to HMRC (the logic being, apparently, that it's VAT the tax man wouldn't otherwise see, so 'shares' it with the VAT registered body). Does anyone know if that's actually true? I can't find a reference to it on the HMRC web site, but perhaps I'm not looking in the right place!

Thanks,

Ollie 

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In your case there may be no point in registering

If you have hardly any inputs to reclaim then it may be more trouble than it's worth to voluntarily register.

I don't quite understand your second paragraph.

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Erm...

However, I was told once (in an informal setting) that companies that are voluntarily VAT registered do not pay the full sum back to HMRC (the logic being, apparently, that it's VAT the tax man wouldn't otherwise see, so 'shares' it with the VAT registered body). Does anyone know if that's actually true? I can't find a reference to it on the HMRC web site, but perhaps I'm not looking in the right place!

Thanks,

Ollie

That's man down the pub talk! It's also tax evasion. If you're VAT registered, you have to account for VAT properly which means paying over the VAT you have collected on all applicable sales, less the VAT you've paid out on applicable purchases.

You are looking in the right place and it's rightfully not there! ;)

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Flat Rate Scheme

Another advantage may be the VAT Flat Rate Scheme - paying a reduced 'flat rate' (a percentage of gross turnover) but not claiming any VAT back on costs.

Several of my IT/engineering contractors benefit financially from this.

 

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Who do you sell to

If being VAT registered does not affect your sales, because your  customers are all VAT registered then under Flat Rate Scheme you charge them an extra 20% and  pay over an appropriate percentage of the total that you recieve. I have no idea what you are but if say a 'Computer and IT consultancy or data processing' it would be 13% of the Gross (120%) charged ie 15.6% of the net sales leaving you with 4.4% of net to cover your unrecovered input tax.

The rates are listed here

If you are genuine then you should be talking over the whole of your financial set up with somone who knows your situation as well as the tax legislation. Looking at individual bits in isolation is tricky. The bane of our lives are clients who wander in after the year end saying 'Oh by the way this year I have bought a house in the company/given shares to my manager/ bought this flash car in the company/ started to draw a pension early' Find a local accountant you can trust.

 

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