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MVD for VAT reg sole trader under £85k turnover

Can I still file manually?

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I've always used Excel to record income and expenditure for both SA and VAT purposes for my husband's carpentry business, and filed manually on line. He registerd for VAT after a particularly good year but hasn't hit the threshold in any subsequent years - must I still go to the expense of using MVD compliant software or can I continue to file manually? Has anyone used the free Excel add-in from Avalara - any good?

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09th May 2019 08:36

Only VAT registered businesses with turnover above the limit have to file for MTD at the moment.

Depending on who his customers are, it might be worth deregistering again if he is back below the limit.

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to stepurhan
10th May 2019 14:12

He thinks customers are impressed by the fact he is VAT reg. I disagree as his clients are 90% private individuals who are not VAT reg and I think they would rather save the 20% additional cost. I haven't signed up to MTD and I think he should deregister - thanks for your comment!

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09th May 2019 09:00

It would be a good idea to put your case to HMRC with a view to getting exemption for VAT. We have had a few cases where turnover has gone over and under the threshold and HMRC have been very understanding when granting exemption. The normal criteria is that if turnover goes over (this is after you have received exemption) for 2 years running then you should register. We also have clients that deliberately keep their turnover below the threshold because they know they would be over and under. Many small concerns lose business once they start charging VAT. The answer to your question is. As you have registered because your turnover was over the threshold then you should register for MTD. However because your turnover is now under the threshold you may be allowed to continue in the old portal.

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09th May 2019 09:51

Just carry on as you are.

Take a print (as it may change) of this notice, section 3.1

https://www.gov.uk/government/publications/vat-notice-70022-making-tax-d...

It says that you are exempt if your turnover is under the threshold. No mention of historical breaches.

NB and consider deregistration in general as noted above.

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to ireallyshouldknowthisbut
09th May 2019 10:00

21.1 is interesting as I had always assumed that once registered for MTD you cannot go back, but apparently you can. What a farce.

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09th May 2019 11:21

@ Sarah Nichols (OP).

(1) The direct answer to your question is that, if your husband’s taxable turnover is below the registration limit (as indeed your question states) then MTD is currently NOT applicable at all, and hence you should continue to submit his VAT returns in exactly the same way as you have been doing in recent years. You do NOT need to apply for exemption from MTD (as exemption will be given automatically).

(2) However, a much more important matter potentially arises from your question. I note your saying that your husband’s business “hasn't hit the threshold in any subsequent years”. If it was advantageous for your husband’s business to have been registered VOLUNTARILY for VAT in those “subsequent years”, then he has of course benefitted from that VAT registration having continued, and therefore “all is well”.

If HOWEVER he did NOT benefit from being voluntarily VAT registered at any point in those subsequent years (in that regard, a voluntary registration would normally have been advisable if your husband’s customers were mostly VAT registered themselves) then he has almost certainly “lost out” by NOT having deregistered. One can apply for deregistration, at any time, if one’s expected future taxable turnover is expected to be below the deregistration limit.

May I suggest that you therefore IMMEDIATELY consider whether he should apply for deregistration.

Basil.

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to fawltybasil2575
10th May 2019 13:49

Dear Basil, my husband's clients are mainly private individuals and not VAT registered. When you say "lost out" do you mean in terms of putting off prospective clients by dint of the additional cost to them of the VAT element or do you mean with regard to cash flow, or something else?
Sarah

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to Sarah Nichols
10th May 2019 14:39

There are a number of disadvantages (as well as advantages) of being registered when one doesn't have to be. Primarily, though, I suspect that Basil is thinking about having to hand over up to 1/6th of takings to HMRC when they could be pocketed instead.

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10th May 2019 15:39

So you are assuming the same total price being charged, if VAT registered or not?

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to andrew1211
10th May 2019 15:43

I assume that was directed at me? I'm not assuming anything, other than assuming that might be what Basil is assuming!

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to andrew1211
10th May 2019 16:03

andrew1211 wrote:

So you are assuming the same total price being charged, if VAT registered or not?

I would certainly say that, if an unregistered person is prepared to pay £1000 + VAT for a job, he is prepared to pay £1200.

Surely that's self-evident.

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to lionofludesch
10th May 2019 16:28

Hmm I am not sure pricing works like that...he adds VAT because he has too. If he did not have too I doubt he would notionally decide to charge 20% more than he might ordinarily do.

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to andrew1211
10th May 2019 16:35

andrew1211 wrote:

Hmm I am not sure pricing works like that...he adds VAT because he has to. If he did not have to, I doubt he would notionally decide to charge 20% more than he might ordinarily do.

Pretty sure it does work like that. Striking a bargain is about a price that the seller is prepared to accept and the buyer is prepared to pay.

20% is over the top, is it not ? An unregistered trader won't be able to reclaim VAT on materials and other costs. It's highly unlikely that he'll be able to charge what would have been his VAT-exclusive price as a registered trader.

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to lionofludesch
10th May 2019 20:45

lionofludesch wrote:

20% is over the top, is it not ? An unregistered trader won't be able to reclaim VAT on materials and other costs. It's highly unlikely that he'll be able to charge what would have been his VAT-exclusive price as a registered trader.

Good point but it's the labour charge that's the stinger for tradespeople.

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to legerman
10th May 2019 22:17

The trader may be prepared to do it for less. Nevertheless, it's clear that the customer will pay the full cost + VAT in the scenario I quoted.

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to lionofludesch
13th May 2019 10:59

The point is that prospective non reg clients would generally go for the quote or estimate that excludes VAT purely to save money and my husband would not charge 20% extra if he didn't have to.

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to Sarah Nichols
13th May 2019 18:07

Sarah Nichols wrote:

The point is that prospective non reg clients would generally go for the quote or estimate that excludes VAT purely to save money and my husband would not charge 20% extra if he didn't have to.

Would they ?

Did nobody ever accept your husband's quotes ?

Price is the issue, not VAT. What's better ? £2000 to an unregistered trader or £1500 + VAT - assuming equal quality work.

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to lionofludesch
14th May 2019 12:14

Yes some accepted his estimates with VAT added but probably just as many went elsewhere because the grand total was 20% lower. Equal quality work can't be assessed or assumed unless repeat business.

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to Sarah Nichols
14th May 2019 13:32

Sarah Nichols wrote:

Yes some accepted his estimates with VAT added but probably just as many went elsewhere because the grand total was 20% lower. Equal quality work can't be assessed or assumed unless repeat business.

As much as 20% ? Surely the VAT on any materials would still be there.

Quotes are subjective. Let me give you a smaller scale, but more clear-cut, example.

Trader buys some cans of pop. They cost 30p + VAT each. They're price marked 60p.

The registered trader sells them for 60p. 10p of that is VAT, so his sale is 50p. They cost him 30p so he makes 20p profit.

The unregistered trader sells them for 60p. They cost him 30p + 6p VAT or 36p, so he makes 24p.

The 4p difference is the VAT the registered trader is paying to the Government.

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10th May 2019 22:18

@ Sarah Nichols (OP).

To reply to your post at 13.49,
fundamentally VAT Registered customers look at the VAT-exclusive costs, but non-registered customers look at the VAT-inclusive costs.

Hence, the 20% VAT charge added
by your husband is a cost which, if he were not registered, would (in principle) form part of his profits. That comment is a slight overstatement inasmuch as his being registered enables him to recover the VAT on allowable expenses: nonetheless, it is 99% certain that his profits are substantially lower than they would be if he were not registered.

There is a related (almost psychological) factor: when supplying estimates to potential customers, your husband may well be asked whether his quotation includes VAT: the customer will often consider whether another (ie a competitor) Carpenter would NOT be registered, and thus that he will probably receive a lower quotation from that competitor.

The fact that you say that around 90% of your husband’s customers are private customers is crucial: at that very high percentage level, it is (as stated above) almost a racing certainty that your husband’s profits are severely reduced by the continuing registration.

At the risk of further depressing you, and whilst I cannot be certain without more detailed knowledge of your husband’s business, it may well be that when he registered, he could have avoided such registration: whilst clearly the registration was effected as a result of the historical turnover having exceeded the registration limit, it seems probable that he could have applied for exception from registration on the grounds that his expected future turnover would be below the deregistration limit.

My above comment derives from your saying (in your opening question) that he registered on the basis of a “particularly good year”. It might have been valid “VAT planning”, if (say) he had been “borderline” in his expectation at that time of future turnover, to arrange a slight change in his modus operandi for “a couple of jobs”, ie to arrange for the customer to buy the materials (thereby reducing his turnover, which would of course exclude those material costs).

In intending no offence, and noting from your profile that you are a semi-retired bookkeeper, I gain the impression that perhaps you are attending to your husband’s accountancy and tax affairs without engaging an accountant. An accountant with a good knowledge of VAT could well have been of great benefit in the past: please do not dwell on that point however (“water under the bridge”): but if your husband does not have an accountant, please seriously consider engaging one.

Basil.

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to fawltybasil2575
13th May 2019 11:54

Hi Basil, I met with the director of a local firm of chartered accountant very recently but he was less helpful than this website has been: he didn't know (or didn't say, anyway) that my husband was automatically exempt from MVD, didn't suggest de-registration or applying for exemption, and didn't know that supplier statements are now acceptable to HMRC for MVD purposes. I have had better advice on this forum frankly.

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to Sarah Nichols
13th May 2019 12:29

Sarah, you will always get better advice from this website for a number of reasons. Firstly Accountants of differing views will debate (ok argue) their corner, which will give varied options to solving a problem. Most posters on this site are Accountants of quality experience who care about the profession and what goes on. Of course, if you want to get your three pennyworth in you've got to be up to speed with what's going on.

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to johnjenkins
13th May 2019 14:52

Well it's certainly worked for me John - very happy!

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to Sarah Nichols
13th May 2019 18:13

Sarah Nichols wrote:
... and didn't know that supplier statements are now acceptable to HMRC for MVD purposes.

In what connection are we speaking here ?

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By JoF
to lionofludesch
14th May 2019 14:37

Hoping the OP comes back as Im interested in this element too.

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to JoF
14th May 2019 15:01

@ Lion and JoF.

This link should assist:-

https://www.accountingweb.co.uk/tax/hmrc-policy/mtd-for-vat-supplier-sta...

Basil.

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to fawltybasil2575
14th May 2019 15:29

Thank you, Basil.

I hadn't spotted that.

However, I was going to continue doing this anyway - just like I've been doing for the past 46 years without the hint of a challenge from HMRC.

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By JoF
to fawltybasil2575
14th May 2019 16:48

Thank you Basil, I missed that too. Waiting for a couple of days in the sun to catch up on my Aweb/other similar reading (sad hey!)

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to JoF
15th May 2019 17:26

I'd been told every single invoice must be input individually for MVD purposes but right here on this website I see that HMRC have now agreed statements paid in full will suffice.

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13th May 2019 10:54

Thanks all, I appreciate your advice. About to de-register for VAT, which will mean husband's daily rate is reduced by 20% for most clients. He is over 60 and so planning to work a bit less over next few years so I think de-registration would be better for him than seeking exemption.

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27th May 2019 17:06

MTD only applies to VAT registered businesses with turnover over the VAT registration threshold. All VAT registered businesses with turnover below the threshold continue to file their VAT as they have done for the last 15 years: manually on GOV.UK. You can voluntarily sign up for MTD but why would you? I know from using bridging software that GOV.UK is easier.

As has already been picked up on and you've commented yourself, he should deregister but keep in mind he will have to pay output tax on goods on hand when he deregisters unless the VAT is less than £1000.

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