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bigduckontax
bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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There, I have an old rather large tax bill that I pay

Customer Question

Hello There,
I have an old rather large tax bill that I pay off monthly (this is from an old overpayment when I was a 40% tax payer working for a company).
I am a sole trader now with two businesses (Both trade completely separately).
One of my businesses has just reached the VAT threshold so I need to register for VAT. 90% of what I sell in this business is VAT exempt (Hand printed Books).
If I back date my VAT registration 1 year and 3 month (one full tax year and the first 3 months of this tax year)...I stand to get a good sized pay out as I will be able to claim VAT on my Costs (My company is not very profitable yet as it is only 3 years old).
This payout would clear all of my old tax debt and allow my to spend some money on advertising (which I currently do not have much budget for.
Does this sound workable?
Is there any reason why I should not go down this route?
I have an account meeting in one week to discuss my situation however am wanting to know my option ahead of time. This accountant has already warned me that the VAT people frown on giving out VAT payout however this is a situation that I will not be able to avoid as my product is VAT exempt but I need to register for VAT.
Registering for VAT will positively impact my business and lower my costs. My book keeping is too a high standard so I don't feel like I am doing anything incorrect.
I am hoping that you could give me your opinion.
Kindest regards
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.

Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.

If you make exempt supplies you do not need to register for VAT. VAT threshold only applies to aggregated sales made of standard, reduced or zero rated supplies made. It does not apply to exempt sales.

Were you to register you could not reclaim input tax suffered, you have no output tax to charge as you make exempt sales.

May I suggest that you employ an accountant with a more comprehensive knowledge of VAT than is currently being displayed.

I am so sorry to have to rain on your parade, but at least you do not have the palaver of having to account for VAT.

Customer: replied 1 year ago.

Hello There,

I am sorry, please forgive me for being a little clue less in this area. I didn't mean exempt, I meant Zero rated.....Printed paper publications are zero rated.

Kindest regards

Expert:  bigduckontax replied 1 year ago.

Ah well, that does make a difference. I will withdraw my comments regarding your accountant!

If you register for VAT which you must if your taxable supplies approach or exceed the threshold, currently 82K. Full details of the process can be found here:

https://www.gov.uk/vat-registration/when-to-register

Here are the rule for reclaiming input tax suffered before registration and how to do it [source UK Gov web site https://www.gov.uk/vat-registration/purchases-made-before-registration] :

'There’s a time limit for backdating claims for VAT paid before registration. From your date of registration the time limit is:

  • 4 years for goods you still have, or that were used to make other goods you still have
  • 6 months for services

You can only reclaim VAT on purchases for the business now registered for VAT. They must relate to your ‘business purpose’. This means they must relate to VAT taxable goods or services that you supply.

You should reclaim them on your first VAT Return (add them to your Box 4 figure) and keep records including:

  • invoices and receipts
  • a description and purchase dates
  • information about how they relate to your business now'

From the tenor of your your question you will have a big chunk of input tax to reclaim on your first VAT return.

I have been involved in VAT accounting since it was first introduced over 40 years ago and am not aware of HMRC objecting to repayments of input tax. Indeed, I ran the accounts of one organsation who made exclusively zero rated supplies and to ease cash flow were allowed to make VAT returns monthly instead of the normal quarterly.

I do hope that my advice has been of asistance and trust that your application will have a beneficial outcome.

bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3606
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support.

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