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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15946
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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. I am preparing a self assessment. I currently pay

Resolved Question:

.
I am preparing a self assessment.
I currently pay VAT on my earnings as I am above the threshold however I do not account VAT on my TAX self assessment as I did not realise you have to do this.
Please could some one clear this up ...
Basically everything on my self assessment is GROSS (including VAT), business outgoings £100,000 , which includes the VAT.
Can I add, as a business expense, all my VAT payments year 2013-14?
Or should i not include them at all.
Please advise, Thanks
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
.

Are you registered on the standard VAT scheme or the flat rate VAT scheme?
Customer: replied 2 years ago.

standard VAT

Expert:  TonyTax replied 2 years ago.
Thanks.

Leave this with me while I draft my answer.
Customer: replied 2 years ago.

ok thanks.

Expert:  TonyTax replied 2 years ago.
again.

If you are registered on the standard VAT scheme, you should not include the VAT in your turnover figure or your expenses figures in your self-assessment tax return as you will be netting all the VAT off in your VAT returns so, in effect, you pay no VAT.

With the flat rate scheme, you charge VAT to your customers and don't reclaim VAT on your purchases. Instead, you pay some of the VAT you charge customers to HMRC depending on the type of business you run and keep the rest on which you pay tax.

Take a look here information.

I hope this helps but let me know if you have any further questions.
Expert:  TonyTax replied 2 years ago.
Here's the VAT link.
Customer: replied 2 years ago.

,

not sure if you got the last message,

i said this.

that on this document it states that you can include the VAT into your business expenses and income, and then you include the VAT you paid to HMRC into box 30, which would deduct it as a business expense.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/354297/sa103f-notes.pdf

are you saying this is incorrect?

Expert:  TonyTax replied 2 years ago.
Let me take a look at that and I'll get back to you.
Customer: replied 2 years ago.

ok, check it out please

Expert:  TonyTax replied 2 years ago.

The net result will be the same whichever method you choose. As you appear to have not included the VAT in your tax returns in the past, you should be consistent and not include it in your current tax return. I don't have any clients who are standard VAT registered who include VAT in their tax returns. It just complicates matters.

If you are in the standard VAT scheme you don't pay tax on your VAT. , if you collect £10,000 in VAT from your customers and pay £4,000 in VAT to your suppliers in a quarter, you will pay £6,000 over to HMRC and you wll be square. The VAT is never your money. You are just an unpaid tax collector.

What HMRC are saying in the link is that if you include your VAT inclusive turnover and your VAT inclusive expenses in your self-employment pages, you either include the net VAT refund in box 16 or the net VAT payment in box 30. That will ensure you don't pay tax on your VAT. It's a simple netting off task.

Customer: replied 2 years ago.

Right, im still not 100% clear.

I understand what you are saying, but looks like you are just suggesting to forget including becuase i have not done in the past and this is just an easy route to forget it.

I would like to fix this issue so going forward it is all done correct.

Lets say over the 2013-14 period I have paid HMRC £6,000 in VAT.
...

You are saying I Should NOT include this in box 30, and should completely forget about it.

However, like i said i want this 100% correct on this return so in the long run it is correct.

Surely if i do no include it now, i am hiding it from HMRC?

Expert:  TonyTax replied 2 years ago.

Read the first paragraph that you referred to:

If you are registered you may enter details of your business income
and expenses either:
excluding VAT (that is, with the VAT taken off), or
including VAT.
If you choose to include the VAT either:
• enter your net VAT payment to us as an expense in box 30, or
• enter any net repayment you received from us in box 16.

Note the highlighted words. You have a choice. There is no right or wrong way. What I can say is that most self-employed VAT registered people in my 35 years experience do not inlcude the VAT inclusive turnover or VAT inclusive expenses in their tax returns.

If you included your VAT inclusive turnover figure and your VAT inclusive expenses in your tax return, you would claim the £6,000 you paid to HMRC in VAT over the year in box 30. All that would do would be to bring you back to the position you would be in had you excluded the VAT from your turnover and expenses. As I just stated above, you have a choice and I choose to tell people to be consistent. Whichever method you choose, you are not hiding anything from HMRC.

Customer: replied 2 years ago.

OK.

So basically what you suggest is keeping with what I have done, which is to show business income and expenses Including VAT (as i have previously done)

But DO NOT add the Vat I have already paid to HMRC in box 30 as this would bring me back to same position had i excluded VAT in the first place.

Is this all correct?

In addition, you suggest to your clients to not include VAT in their figures on their tax returns, however we have a choice and can do.

Is that correct?

One last thing, why do you suggest not including VAT on figures on the tax return?

I hope you can answer these questions,

I thank you time,

Expert:  TonyTax replied 2 years ago.

It seems to me that you haven't been claiming the net VAT you pay as an expense in your tax returns which you should do if you include VAT inclusive turnover and VAT inclusive expense figures. You should revise your 2013 tax return by 31 January and claim the 2014 net VAT outlay in your 2014 tax return.

You do have a choice. Most people who are standard registered don't include the VAT as they have dealt with it through their VAT returns. If you were not registered, you would include the VAT on your expenses in your tax return as you cannot claim it back.

I suggest that VAT inclusive turnover and VAT inclusive expenses isn't included in the tax return figures (use net of VAT turnover and net of VAT expenses instead) because when people do include it, more than half will make a mess of it and either pay too little or too much tax. In addition, their VAT quarters may not run in line with their accounting period and that makes things more complicated than they need to be.

Customer: replied 2 years ago.

thanks , but im a little confused again, ha.

now you say, that becuase i am putting my figures as vat inclusive and expenses, i should actually put the VAT paid down as an expense? ( IMPORTANT)

BUT if i was not registered i would include it as an expensive (Which i have been registered so this does not apply) (which is fine)


Also - you suggest not to include VAT on return figures becuase people mess their returns up and the quaters usually do not run in line (which i agree with, would complicate things) ( WHICH IS FINE)

HOWEVER - in this case, i really want to get down to nitty gritty, should i put it down as an expense in this case? AS you said in last answer, i should be. ( IMPORTANT POINT HERE )

SORRY IF WE ARE GOING OVER THIS RUBBISH AGAIN.

Expert:  TonyTax replied 2 years ago.

There's no need to apologise.

If the turnover figure in your tax return inlcudes the VAT you charged and the expenses in your tax return include VAT, then the net VAT you pay to HMRC over the year should be claimed as an expense in box 30 and if you get a net repayment of VAT over the year, then you should include that as a receipt in box 16.

By doing that, you are neutralising the VAT which is exactly the same result you would get if you excluded from your tax return the VAT charged on your turnover figure, the VAT charged on your expenses and the net payment or repayment of VAT.

Customer: replied 2 years ago.

ok , yes all my figures include VAT i have charged to customers and VAT i have paid on expenses.

figures,

Turnover £110,000

Expenses £70,000

Total Taxable profits £40,000

Then I would add the figure i have paid to HMRC years VAT in box 30 and it would reduce my taxable profits right?

In addition to this, i know you said it can get messy due to the dates of vat return, and yes it can becuase April 2013 was part of feb/march/april VAT return....ETC...

how would one proceed?

Expert:  TonyTax replied 2 years ago.
That's correct. If you are a net VAT payer, the VAT you have paid over to HMRC goes into box 30 and reduces the profit you pay tax on.

It is messy. I did say you should be consistent but if your VAT quarters don't coincide with your accounting period, you might change the way you do it in future and make a note in your return to tell the tax office of your change of policy. You need to spell some things out in black and white to HMRC.
Customer: replied 2 years ago.

OK, thanks, ***** ***** will be messy, quater that does not run properly, should i just estimate it, like third it?

feb/march/april , divide by three to work out the VAT i paid them ?

or not, or completely ignore that month?

(i am upset now that i did not know all this as i have overpaid tax couple years)

Expert:  TonyTax replied 2 years ago.
Put in an estimate and amend the return when you know the quarter figure. Amend your 2013 tax return online by 31 January and you'll get a tax repayment since you haven't claimed the net VAT as an expense in the past.
Customer: replied 2 years ago.

I will never know the figure becuase im sayings its April 2013, so Feb/March/April 2013. If would take me forever to go through those accounts to work out how much VAT was just of that period, does that make sense?

So i dont think ill be able to get definitive figure , it will always be an estimate.

Same with the last month of that accounting year, the VAT return was Feb/March/April 2014.....I just need to work out FEB AND MARCH really.

(i know this is messy, so sorry, and thank you paitence)

-----

Finally, with regards ***** ***** the figures in 2012/13 tax return, you say this is still possible? I dont want to make things messy or get them worried about me.

Expert:  TonyTax replied 2 years ago.

If you cannot work out the exact figure include an estimate 2014 tax return.

You are within your rights and the time limit to amend the 2013 tax return by 31 January 2015. Many taxpayers amend their tax returns.

Read the notes here.

Make a written claim relief to try to get the 2012 and earlier tax laibilities amended to give you relief net VAT payments you have made. HMRC may refuse to entertain the claim on the basis that you had an opportunity to amend your tax returns but the time limits have passed.

Customer: replied 2 years ago.

ok thanks

so i have finalised in my head what i will do 2013/14 return

however previous returns i am unsure.

when i registered in 2011 there was a mess up with their system, and i didnt make my first payment till November 2012 which included VAT from Dec 2011 - late 2012.

The next payment was March 2013 which im presuming was the Nov/Dec/Jan VAT period. Then the next one June 2013, which im presuming was the Feb/March/April 2013 period.

As this is getting confusing i may just not make adjustments to claim the VAT /13 as a payment as it is a little messy espeically as my first VAT payment to HMRC was long period from 2011.

As i will not be able to identify in that big first VAT RETURN what was actually 2012/13.

What do you think?

cheers

Expert:  TonyTax replied 2 years ago.

It's your choice and you may be losing a fair amount of money. If you pay someone to look at it, you might pay them more than you recover in tax.

Given that your VAT was a bit messed up initially, it might be better to let sleeping dogs lie.

Customer: replied 2 years ago.

Yeah i just had a look . To cut a long story short, I was fully registered fully in Sept 2011.

I was asked to submit first return from Dec 2010 - Oct 2012.

After that it was every 3 months.

So the 2012/13 Tax return, if i submit to put the VAT as an expense now, it could look messy right?

I have no idea how i could work out the VAT 2012/13 based on that big VAT return from Dec 2010-Oct 2012.

Unless you have an idea?

Expert:  TonyTax replied 2 years ago.

Give that the first VAT return was a long period, I'd probably put it down to experience.

Having said that, I don't like to see the government benefiting from innocent mistakes so I'd consider claiming the last two quarters of the 2012/13 tax year and possibly a proportion of the larger period. Work out how much tax and Class 4 NIC that may be worth and the make a decision. After all, you won't be claiming anything that you aren't entitled to.

Customer: replied 2 years ago.

between dec 2010 and oct 2012 i paid 3976 in vat.

nov/dec/jan is 1615

feb/mach approx 1484.

so 2012/13 i am trying to work out what i should do.

i think ill put in claim nov - march , which is 3099 in VAT, but i might leave the dec 2010 - oct 2012 OUT.

OR i could divide that amount 3976 by 22 months, then just use 7 months of it, which is 1207, and add that to the other amount of VAT i wish to put in as expense.

what do you think?

Expert:  TonyTax replied 2 years ago.

again.

Assuming you did tax returns from when you started the business, you should strictly have put the VAT figure in those returns so I'd normally be inclined to claim the £3,099 and leave it at that. However, as you paid it all in 2012/13, I'd claim it all and wait year see if the tax office pick it up. If they reduced your claim, you would have to pay the tax relief back with interest at 3% per annum.

Customer: replied 2 years ago.

so, you would claim all of it, the 3099 and the 3976 which is a total of 6175.

when you put in a claim to reduce a previous years records, does the system automatically adjust your account so you get the money back, or does some one manually look at what you have inputted then make the adjustments?

(also why you say wait a year?)

one last thing, just to clarify what you said at the end, do you mean if the tax office disagree with the claim and alter it, i would have to pay the difference/all of it back plus interest of 3% per annum?

Thank you again. sorry questioning you.

Expert:  TonyTax replied 2 years ago.

I'd claim it all. Sometimes the HMRC computer makes the adjustments automatically and repays any excess tax. It may still raise a red flag to look at and you might put a note in the white space explaining what you have done.

HMRC have a year from when they receive a return to enquire into it.

If the claim was adjusted downards, then you would need to repay the tax over-repaid with interest.

Customer: replied 2 years ago.

Thanks your help.

I shall have a think about wether I am going to bother putting in a claim 2012/13 year and i dont want anything to flag and cause any hassle down the road.

If I do decide to do it, how do i do it? And should/could i include a note indicating why im doing it?

Also, with regards ***** ***** latest tax return, ill include the VAT paid over the course of 2013/14 year in box 30, which is 'other business expenses' -> however also in this box i usually put the total amount of a bunch of recipts of business expenses of all sorts of daily stuff i buy business, stantionary, and such like.

should i go through reciepts and split them up in different categorys or is it ok to keep all this recipets total in the 'other business expenses' and add the VAT amount to that?

cheers

Expert:  TonyTax replied 2 years ago.
If you are going to amend your 2013 tax return you do it online and click on the amendment icon which you should see when you login. I would include a note so as to be seen to be being open about it. The amended return needs to be submitted by 31 January.

If the "other expenses" don't fit into any of the other box categories, then leave them on box 30 and add the VAT to them. As the box 30 figure is probably going to be bigger this year, you might include a note of explanation.
Customer: replied 2 years ago.

ok thanks

i adjusted the other return, but only included VAT 2 quarters as didnt want to make it too messy and too much of an guess.

it did not automatically refund or put any credit on the account.

does it take a few days to adjust?

thanks

Expert:  TonyTax replied 2 years ago.

It will take up to 72 hours changes to register and show in your self-assessment account.

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