VAT registration threshold - what is taxable turnover?

[Mustang]

One would always hope that you would be successful enough that you were going to go through the threshold anyway. If that's the case, you might as well register early to avoid seeming to put a 17.5 per cent increase on later - especially if your competitors are also VAT registered.

[THEPUMA]

To answer the original query, this is a bit of an anomaly arising in connection with what is called the "reverse charge procedure".

When such services are provided in the EU, the supplier puts both his and the customer's VAT number on the invoice and doesn't charge VAT. The supplier also has to write on the invoice something to the effect that "the reverse charge procedure applies to this invoice".

Both the supplier and customer are then treated as having supplied and received services of the amount in question.

The purpose of this is to prevent suppliers in any particular jurisdiction having a competitive advantage over their overseas rivals purely by virtue of a lower local VAT rate but the knock-on effect can sometimes seem unfair.

Also, Malvolio's post 3 which suggests including bank interest, dividends, etc within taxable supplies for these purposes is incorrect.

[malvolio]

Also, Malvolio's post 3 which suggests including bank interest, dividends, etc within taxable supplies for these purposes is incorrect.

Aaargh.... Of course it is. What on earth had I been drinking...

[ittony]

Thanks everyone, especially Malvolio for keeping all us n00bs on our toes, and THEPUMA with his wacky habit of actually answering the question. So, just to clarify - because of a quirk of the system, I do have to add an amount the company has spent from its income to the income itself in order to calculate turnover, and therefore if I've invoiced my clients 60k this year but spent 5k of it on a foreign designer to do my letterheads then although everyone else would regard my turnover as 60k, the VAT man will say it is 65 and I therefore need to register? That's a bit.... odd, isn't it?

[IdleObserverNo1]

Vat

It's all about accounting for VAT on your sales + accounting for VAT on purchase of services from abroad.

If you are not registered for VAT and your vatable turnover is £60k, you are under the limit of £64k for ye 2007/08 (£67k for 2008/09) under 'normal' circumstances.

VAT POINT ONE:
But if you are registered and your t/o is, say £100k then your VAT due on Sales would be £100k x 17.5% = £17,500. [Box 1 of VAT Return]
If you also purchased certain services from the EC, say worth £10k net, but they did not charge you VAT, then you owe £10k x 17.5% = £1,750 VAT to someone! In fact you must declare this amount [Box 3 of VAT Return], making a total of vat due of £19,250 [Box 3 of Vat Return].
Are you with me so far? Good!
Then, you deduct all the VAT you have paid on purchases in the UK and on purchases of services from the EC.
So enter the figure in Box 4. Take Box 4 from Box 3, put the answer in Box 5 and that is your net VAT liability. You can see that if you have not paid vat on your purchases from the EC, you will now be doing so as a result of this computation. But if you have actually paid vat on this purchase from the EC, then the two figures will net off and you have no further liability.

VAT POINT TWO (the interesting bit!)
Now you have to declare the trade that created this vat liability.
First of all you had net sales of £100k. This figure goes in box 6.
Then you also incurred an additional liability to vat because of your purchase of £10k worth of services from the EC. Put £10k in Box 9
(we'll ignore box 7 & 8 because these are not relevant to to our discussion)
So now the vat man is able to see if you have calculated your vat liability correctly. He will see £100k t/o in box 6 and would expect to see £17,500 in box 1. He will also see that you 'incurred' an additional vat liability by virtue of your purchases of services from the EC.
Adding the two together will enable him to see the 'total VAT due', and the underlying amounts on which the vat was calculated, which will be 100k + 10k +110k. n.b This is the underlying figure upon which the total vat due to him is computed. This is also the figure he uses to determine whether or not your trading is under or over the vat trading threshold.

So! If purchases of EC services (poECs) + sales are under the threshold, the vat man is not interested. But if poECs + net sales is over the threshold, he is very interested! This is why you must add your poECs's to your sales to determine the situation!
I agree that poECs's are not t/o, but the vat man needs a combined figure to determine the 'vat flow' elements and to compute Gross/Total vat due. (Remember, of course, that the net amount of VAT due is after deducting vat already paid).

If this is difficult to follow, try jotting down these figures and box numbers down and seeing it for yourself (E&OE!)
(The vat man uses all these figures to calculate trade, UK and inter-EC.)
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If you have any further questions, please save them up until after I have left the country!

Regards