how to avoid registering for vat

cleoh23

I have just opened my own small business. (service industry)
I pay myself €300 per week.
I employ one girl part time 2-3 days per week
I usually take in €600-900 per week (after wages deduction)

My accountant says if i go over 37,500 a year i will need to register for vat.everyone tells me, even previous owner of business, that i will be left with nothing if i go over this amount even by 100 euro so its not worth it for such a small business.

I am afraid that i will,how much should i keep for myself so that i dont go over this amount?

I dont know is the 37,500 just profit amount or actual gross takings for the year??

HELP!!

SoulTrader

The limit for registering for VAT is based on turnover, not profit, so it won't matter how much you pay yourself.

Why would registering for VAT put you out of business though? Is it that your customers would be sensitive to having to pay VAT on your invoices?

drunkmonkey

Vat doesn't come out of profit. Think of it as your a tax collector but you get the opportunity to claim back the Vat on your costs.
It won't make the business any more or less viable. If your dealing with businesses they expect to pay the vat and if your not charging vat they expect the price to reflect that.

cleoh23

i would have to put up the cost of my services so id rather not have to do that!
will my businesss lose money by having to pay vat?

PaulPinnacle

drunkmonkey wrote: »

It won't make the business any more or less viable.

If it's a B2C service and other providers are offering it ex VAT, it will make the costs far less competitive (assuming the VAT on purchases can't reduce overheads accordingly).

The only way to avoid it is to not cross the threshold, which itself isn't a good thing and artificially capping your max turnover. You really need to speak with your accountant, getting a clear picture of the overall situation (balancing what savings you can make vs. the increased cost for non registered clients).

mneylon

Talk to a proper accountant or one of the business people in your bank

VAT is charged on sales, but you write it off against your own VAT expenses

So, as a very very simple example ..

If you buy a computer for your office which includes €150 VAT, then you'd remove that from your own VAT bill

NB: You can't write off VAT unless you are VAT registered ..

DoMyBooks

This link may make the VAT registration decision clearer
http://www.domybooks.ie/2010/04/do-i-have-to-register-for-vat-galway-accountant/

abrr1000

If you are in the service industry and vat registered, you will need to pay out 13.5% of all your takings to the Revenue
So if you made sales of 4000 a month, you pay 4000/113.5*13.5 = 475.77 to the Revenue.
At the same time, if you made purchases for stock, bills etc of 1000 (inc vat) during the month, you can claim back the VAT you paid on them.
Then you can claim back VAT of amount 1000/121*21 = 173.55

So the amount for the month after tax is:

4000 - 1000 + 173.55 - 475.77

Kinetic^

As stated, it's calculated on sales rather than profit. ie. If you sell €100,000 and have €90,000 expenses with a profit of €10,000, you have to register VAT as your sales exceed the threshold of €37,500.


Do you know whether you would have to charge 13.5% or 21%?

Lantus

13.5% of 4k is €540.00


21% of 1k is €210.00


tax bill would be 540 (on sales) - 210 (on purchases)

= €330.00


this is a balance done at the END of the tax year as to whether you will be due a rebate or not.

Bear in mind that paying tax is generally a good thing because it means your making money (and have the potential to make much more.)

Frynge

Lantus wrote: »

13.5% of 4k is €540.00


21% of 1k is €210.00

This is not correct. the price of goods or services less VAT amounts to 100% it is on that 100% that the VAT is added so the price becomes 113.5% or 121%

Kinetic^

Lantus wrote: »

Bear in mind that paying tax is generally a good thing because it means your making money (and have the potential to make much more.)

Not necessarily. It depends on who his customers are. If they're business based then they will most likely registered for VAT and claim it back. If they're not, then he'll have to think about what his competition are doing and the best way to offer a good price to the consumer while including VAT in the price. If his VAT inclusive price is 21% higher than his competition who are offering same service then who do you think the consumer will choose?

Initially people want to know how much before you even commence a job. While quality of work and customer service will win out, if you don't have the cash flow to survive X amount of time till your competitors incompetence shows through they could end up taking your customers even though they're not quite as good.

PaulPinnacle

Frynge wrote: »

This is not correct.

One example is treating the €1k/€4k as VAT inclusive prices and one is treating them as excl. VAT.

It's adding confusion to what should be a very simple example, but a good lesson for a new business to track figures (and what they represent) in detail.