macrobug

In the UK businesses with a turnover above £66,000 must register for VAT. However businesses with a lower turnover have a choice.

What does VAT registration mean?

It means that you have to charge your customers VAT, but you can also reclaim VAT on whatever purchases you make. It also means you have lots of quarterly paperwork to do. You pay the government the difference between the VAT you charge, versus the VAT you spend.

Sounds simple. I decided to register for VAT because, although there’s lots of extra paperwork, I would make a small saving in tax and it’s one more thing I wanted to learn about.

But last week I got this horrible nagging doubt that I’d all made a huge schoolboy error and I was going to end up paying lots more tax due to VAT. Really elementary stuff. I have reassured myself. Here’s how it works.

Obviously, the real numbers will be bigger, but the saving probably still won’t be much more than the accountancy costs incurred to get VAT up and running, not to mention the time spent doing so. But there we go.

The reason for the temporary doubt is because I was told that I’d have to include VAT on my charges to my customers even if I weren’t VAT registered. I was told this by the customer in question! This, I believe, is incorrect. This is the page that finally reassured me. I had been right all along. HM Customs and Revenue pages aren’t too hot on explaining the pros and cons of VAT registration, possibly because they get less money if people like me register, although on the whole I’ve found HMRC to be quite diligent at collecting the correct amount of tax rather than collecting as much as they can. YMMV…

Anyway, I really hope I’m right and that I didn’t make the schoolboy error after all otherwise this post is going to make me look extremely silly.

PS I don’t want to be schoolboyist. I think I was probably less of a wally when I was a schoolboy.

This entry was posted on Friday, October 13th, 2006 at 3:09 pm and is filed under Business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.