blip

I'm a sole trader, never been VAT registered and have just realised that I went through the VAT threshold of 58k just over 6 months ago. I had stupidly misunderstood when I needed to register, thinking that as long as I didn't earn more than 58k in my financial year (rather than over any 12 month period) I didn't need to register. I know - doofus!!!

Anyway I'm now panicking because since I hit the threshold in Dec 03 I have subsequently invoiced for about another 40k (without charging any VAT). I'm worried that I will have to repay loads of VAT (money that I don't readily have) as well as a penalty for late registration.

Does anyone know what is likely to happen and how they backdate and calculate not only any VAT that I owe them (even though I haven't been charging any on my invoices) but also any VAT that I can offset against that for goods/services (with a VAT element) that I have been buying ???

Also can I just clarify that the threshold is based on my gross turnover, irrespective of how much of that I pay to my suppliers, or ultimately pocket myself?

Cheers

**Edited to say: Am I right to think that they will find out and come knocking if I don't actually tell them?? Thing is I probably won't earn above 58k again in a year the way things are going now.

Butty

iTrader: (2)

You must register if:

a) at the end of any month, the total value of the taxable supplies you have made in the past 12 months exceeds the limit
or
b) at any time you expect that the value of your taxable supplies will be more than the threshold.

It sounds like a) is your scenario.
You will be asked for the VAT above the £58K limit (ie VAT on £40,000). You could try retrospectively charging for it from your clients, but they may not help out.
However, as long as you have kept all receipts, the VAT on the taxable supplies will be reduced by the VAT on the allowable expenses.
For late payment, the surcharge is 2% on top of the VAT you will owe and can rise to 5% then 10% with repeatedly late payments.
There will also be a default record agianst your name.

Yes, the threshold is in effect the value of your invoices before taking off any VAT claimable expenses/ overheads/salaries.

As a sole trader, it is best being VAT registered even if under the threshold.
You will then be able to remove the VAT element on such things like running your car - as an example it costs me £10,000 a year all in to run the car, including VAT.
As sole trader, I can claim 90% of the VAT on that amount, which helps a great deal.

Otherwise, I'm afraid its bad news for you and the C&E won't stand for any excuses.

Nick

blip

Thanks Nick, your comments are much appreciated

Yeah I know I have screwed up with this whole thing, I'm kicking myself. It was a genuine misunderstanding on my part on how it was calculated. I had even held some big invoices back until my new financial year started in April thinking that I would avoid having to register for VAT for the previous year.

Only reason I haven't registered voluntarily in the past is because of the extra hassle and extra book-keeping of quarterly VAT returns.

I have been reading through reams of info on the HMCE site and am getting my head around it a bit more now.

I was hoping I could claim back the VAT I paid on my new scoob last year, but it appears not as I would not be able to prove that the car was not available for private use.

But it is good news about being able to claim the VAT back on running costs. How do you calculate yours? Is there a simple formula? Is it like Income Tax allowances where I state that my car is used 90% of the time for business use, and so I can claim 90% of any running costs (fuel, insurance, servicing, etc)?

David Lock

Don't forget that if you have friendly customers then they may help in accepting a VAT Invoice for previous supplies as although it would now be for a larger amount it won't cost them anymore in the end as they will simply claim the VAT back (assuming they are registered). I think that is the case but stand to be corrected. You should certainly discuss this with your accountant if you have one. Nick is quite correct get the VAT on your side not against you. So a bit of grovelling may help. Good luck. D

PS. Don't forget you can also claim VAT on other general business expenses such as costs of office materials, PC's etc etc.

blip

Also, when you say there will be a default against my name how will that effect me in the future? More visits from HMCE? Or will it actually effect my credit rating forever more when applying for mortgages/loans/cards/etc??

blip

Thanks David. I am hoping that the company I do most of my work for will accept retrospective VAT invoices.

Am also polishing up knee-sliders for much grovelling

Nick

"I was hoping I could claim back the VAT I paid on my new scoob last year, but it appears not as I would not be able to prove that the car was not available for private use."

You can't claim back VAT on cars, only commercial vehicles. You can claim back VAT on the running expenses for cars though. Remember the VAT fuel scale charge if you intend to claim VAT on fuel.

David Lock

That'll be the Scooby Van then

blip

Well......mine is a wagon......soooo....

Butty

iTrader: (2)

Take out the rear hatch back & side windows and put panels in - then its a commercial vehicle

Regarding the 90% car thing, my accountant advised me to claim that a "not unreasonable" 90% of annual mileage was for business use, so 90% of running costs are claimable as expense and so is 90% of the VAT.

Nick

Tracey

The very same thing happened to us about 15 years ago, lucky we only subcontracted to one company, so they paid all the VAT that should have been due on all invoices, so we could pay the VAT man, we were lucky.

Good luck, just be honest with them. I remember will our first audit with them, they are not so scary, they can tell if you are ripping them off

Redkop

When you approach this company blip, it might be an idea to suggest that you will invoice them retrospectively, at the end of their VAT quarter. That way, they will be able to claim back immediately what they will have had to pay you.