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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15940
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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If customers pay me Vat of £2,000.00 but after Vat credits

Customer Question

If customers pay me Vat of £2,000.00 but after Vat credits for materials my vat bill for the quater is £1,000.00 what happens to the balance of £1,000.00 ? Is this mine to withdraw and if so is it taxable ? If it stays in my business account is it taxable ?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. I'm assuming you are in the standard rated VAT scheme. A business such as yours should, in net terms, pay no VAT. You are simply an unpaid tax collector. You collect VAT from your customers (A) and pay VAT to your suppliers (B). At the end of the quarter, you net off the VAT you paid to your suppliers against the VAT you collected from your customers. If A is larger than B, you pay the difference to HMRC. If B is larger than A, you get a VAT refund. Nothing happens to the balance of £1,000. In fact, there isn't a balance of £1,000. Your books are square. You collected £2,000 from customers (A) and paid £1,000 to your suppliers (B). At this point, you are ahead by £1,000. However, you then pay that £1,000 to HMRC and so you are square. I hope this helps but let me know if you have any further questions.