Small business VAT

[InMySpareTime]

I have a very small business. As I earn far less than the threshold where I need to register for VAT, do I still need to charge it to customers?
Further complication is that some of my work is educational (which is VAT exempt?) and some is a product. Do I need to account for them separately?

I thought not, I'm sure tradesmen have told me with glee "I don't need to charge you VAT!". Inland revenue can advise, if you want authoritative answers.

As long as you are earning less than the VAT threshold of £77,000 of taxable supplies (so this wouldn't include your exempt business) then you do not have to worry about VAT at all.

You don't charge it to your customers and you can't reclaim the VAT you pay on things you buy.

You can register voluntarily if your taxable supplies are less than £77,000 but you would need to consider whether that is worth doing as it depends on many things but mainly whether your customers can reclaim any VAT you would have to charge them and also what VAT you would be able to claim back. With some of your supplies being exempt the you would not be able to claim back all VAT you pay anyway. There are reasonably complicated partial exemption rules so I won't go into those here.

Hope that helps.

Thanks, that is good news, I was worried it was too stupid a question, and DH said it seemed wrong that small businesses don't pay tax.
Of course, when I'm rich and famous I'll gladly pay all tax due, but until then, every penny helps, and this will make all the difference to my profitability
Thanks again.

You still need to pay tax/NI on your profits, though! You'll do it through self-assesement

I'm quite unlikely to earn enough for tax, and have SEE. It really is a very small business.

I'm also interested in the business about when you have to charge clients VAT. As a sole trader just starting out, I do not expect to earn over £77k in my first year - but if things went really, really well then it would be conceivable that I went over that.

So at that point would I have to start charging VAT to my customers when I hadn't before?

All my customers are likely to be other large businesses, so they will be able to claim the VAT back - so I guess it doesn't make much difference to them?

Merguez, you have to monitor your sales, and when you forsee that you are about to reach the threshold, then at that point, you must register for VAT. You will be sent a VAT number, and from that point you must charge it to customers, and do quarterly return.

We have just de-registered for vat as our sales for the last 2 or 3 quarters mean we will be well under the thereshold for the next 2 .

One less pain in the arse HMRC job for me to do I suppose!

OP you will have to still register for Self Assesment and pay tax you know! Don't think for moment that HMRC dont have lots of other records for you to keep, and lots of other taxes to pay!

You can opt for the Annual VAT scheme and the VAT Flat rate scheme which can both be useful to small businesses which are just over the threshold. They can both be advantageous in terms of admin and cash flow, but it depends on what you are doing as your business (esp for the flat rate scheme)

Take a look on the HMRC website and it is very well explained as to whether you qualify and how to opt for one or both

Ah - thanks both of you that's really helpful. And such quick responses too!

Paulapants, I have registered for self assessments, and have Small Earnings Exemption for NI (no chance of exceeding tax threshold!). I kept reading that businesses taking under £77k did not need to register for VAT but wasn't sure what that meant in practice, and didn't want to get stung for VAT at SA time, as 20% of my earnings is likely to be the difference between net profit and loss.
Current earnings this year to date: £125, projected to tax year end: £335, as I said, very small business.

Have a look at the page I've maintained for a few years ....
cgi3.ebay.co.uk/ws/eBayISAPI.dll?ViewUserPage&userid=talkinpeace

also
bear in mind that from week after next, self employed people have to earn above the tax allowance in under 24 hours a week to get any form of tax credits

Luckily we don't get tax credits anyway, leaving me free to earn pitifully small amounts of money without government intervention. I now have a regular booking, earning me £10 a week, every week. At least it's local, and only a 30 minute storytelling session.

You still are obliged to file self-assessment if you've earned anything, though, those are the UK rules, regardless of whether you owe or how small the amount.

Filing even if you don't owe is good, really, because when the year comes that you do owe, you will have paper trail to show that you didn't owe any previous years.And you will know how to file the returns, it won't be as steep a learning curve.

I'm quite looking forward to the end of the tax year, not only will I owe the taxman nothing for self employment, they owe me £50 tax from employment up to October. That is coincidentally the amount it would take to put the business in actual profit!
I will have actual profit next year, as I have bookings and orders ready, and my costs are lower.
Do I need to file another SEE form?

I've just started up a business expected to bring in about £25,000 (maybe a bit less) and chose to be VAT registered on the flat rate scheme, as it means you get to keep a little extra money! You charge your clients VAT at 20% and give HMRC 14%...thereby keeping the difference...