Reply to: Is VAT punitive for threshold contractors?

[northernladuk]

Im asking why the 2k was mentioned at all. I didn't see anything specifically to do with FRS in this thread. And FRS wasn't mentioned in his post.

"you may be able to claim back the VAT on certain asset purchases with a VAT-inclusive price of £2,000 or more."

This a line which could cause more confusion than clarity without specifically saying you're on about FRS.

Ah got you now and very true.

[MrButton]

Are you asking where is the rule that says 2K or just discussing why the limit has been set to 2k?

https://www.gov.uk/vat-flat-rate-scheme

Im asking why the 2k was mentioned at all. I didn't see anything specifically to do with FRS in this thread. And FRS wasn't mentioned in his post.

"you may be able to claim back the VAT on certain asset purchases with a VAT-inclusive price of £2,000 or more."

This a line which could cause more confusion than clarity without specifically saying you're on about FRS.

[Jeremiah@RHJAccountants]

Why does it have to be over £2k?

This is the rule as per HMRC, the rhyme or reason for £2K I am sure they have a good answer for that!

Taken from the link as per the above post:

15.2 Reclaim of VAT on capital expenditure goods

If you use the Flat Rate Scheme, you can reclaim the VAT you have been charged on a single purchase of capital expenditure goods where the amount of the purchase, including VAT, is £2,000 or more.

You deal with these capital expenditure goods outside the Flat Rate Scheme. This means that you claim the input tax in box 4 of your VAT return.

If the supply is:
•more than one purchase
•under £2,000 including VAT, or
•of services

then no VAT is claimable, as this input tax is already taken into account in the calculation of your flat rate percentage.

15.3 What counts as a single purchase of capital goods?

The normal VAT rules are used to determine whether any particular supply is one, or more than one, purchase and whether supplies are of goods or services.

Examples of a single purchase are:
•a computer package (computer, printer, camera, scanner, speakers etc.) bought as one package is one purchase of capital expenditure goods. If the package costs £2,000 or more (incl. VAT) then input tax can be claimed
•items of kitchen equipment (a pizza oven, a fridge and a dishwasher) bought for a restaurant. If all the items are from one supplier at one time, then they count as one purchase of capital expenditure goods. If they are from three different suppliers or at three different times then they will be three purchases and each must be £2,000 or more (inc VAT) to qualify for a reclaim of VAT

[northernladuk]

Why does it have to be over £2k?

Are you asking where is the rule that says 2K or just discussing why the limit has been set to 2k?

https://www.gov.uk/vat-flat-rate-scheme

•you can’t reclaim the VAT on your purchases - except for certain capital assets over £2,000

[MrButton]

you may be able to claim back the VAT on certain asset purchases with a VAT-inclusive price of £2,000 or more.

Why does it have to be over £2k?

[Jeremiah@RHJAccountants]

Don't forget the potential you can reclaim VAT on your first VAT return even.

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 may be able to claim back the VAT on certain asset purchases with a VAT-inclusive price of £2,000 or more.

[notasockie]

Christ, this is a trolling sockie

FTFY.

[ContractorScum]

Christ, this is terrifying

[Glencky]

VAT is literally the most straightforward part of the accounting, financial and tax side of being a contractor in this market. It astonishes me that you can get to the stage of operating a limited company and have no idea whatsoever how VAT works.

In fact, it astonishes me you can get to working in a professional career, even if you had always been a permie but obviously *have paid VAT yourself in your personal life* without understanding how it works better than your OP demonstrates.

You've already been given the pointers, but truly - you are very well advised to spend significant time reading up not only on VAT but on all other tax-related aspects of running your company.

[TheCyclingProgrammer]

Umm, haven't I already said this? TBH I like it when I'm correct

Yes, but I don't always read every reply before I respond

[gables]

This is not correct. You become liable to account for VAT on your sales as of your registration date - it's not backdated unless you ask for it to be backdated or were late in registering for some reason. Only if you have issued invoices over past your registration date would you need to re-issue VAT invoices. And it's a rolling annual threshold too.

Umm, haven't I already said this? TBH I like it when I'm correct

[northernladuk]

This is not correct. You become liable to account for VAT on your sales as of your registration date - it's not backdated unless you ask for it to be backdated or were late in registering for some reason. Only if you have issued invoices over past your registration date would you need to re-issue VAT invoices. And it's a rolling annual threshold too.

I think that's a double

He's certainly racking them up today.

[TheCyclingProgrammer]

No VAT is an annual threshold - so if you go over it in the year all your services are VATable (even ones you invoiced and didn't charge VAT on)

You then have two choices - go back to the client and tell them you are a muppet and forgot to charge VAT or pay it out of pocket.

This is not correct. You become liable to account for VAT on your sales as of your registration date - it's not backdated unless you ask for it to be backdated or were late in registering for some reason. Only if you have issued invoices over past your registration date would you need to re-issue VAT invoices. And it's a rolling annual threshold too.

[TheCyclingProgrammer]

Ok so if I were to delay registering for VAT until I reached £85K earnings, then register, would I only collect VAT for the +/- £15K outstanding income for the earnings above the threshold? (ie, that would total around £3K for HMRC for VAT for my first year).
But then the next year I would be expected to claim VAT for the ENTIRE year - £100K? (ie, £20K VAT amount payable to HMRC in year 2).
Again this seems a bit wonky and lopsided in favour of HMRC.
Couldnt I just wait until I reached £85K income and THEN start charging VAT every year?

Christ. VAT isn't rocket science. It beggars belief that you are finding this so difficult to understand.

Once you are registered for VAT you need to charge and account for VAT on all sales made post-registration.

If your day rate was £450 before you became registered, it will become £450 + VAT after you become registered. The VAT you charge gets paid to HMRC, leaving you with the same £450 you had in the first place. But it's actually better than that because you only pay the VAT you charge less the VAT you've paid, so your costs become cheaper.

[TheCyclingProgrammer]

Unless you almost exclusively work for non-VAT registered clients, or clients that mainly make VAT exempt supplies and are unable to recover your VAT, then I can't see how being VAT registered would ever be an issue.

Yes, there's a bit more record keeping and the requirement to submit a VAT return every quarter, but IMO that's more than outweighed by the ability to recover input VAT on your costs. If you're using bookkeeping software you should be able to automate most of this stuff anyway. Staying deliberately under the threshold seems crazy to me.