VAT FOR BUSINESS EXPLAINED!

Wondering what 'VAT' is all about? In this video Dan runs you through some examples of how VAT works, and how it affects your business.

Topics include:

How does VAT work
What is VAT
What does VAT mean
When to register for VAT
VAT threshold
Is VAT good for new business
When is it a good idea to VAT register

..... and more!

#selfemployed #VAT #limitedcompany #smallbusiness

If you have further questions - please get in touch below.

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Call: 02392 240040

[MOUSERMONK]

I'm an online retailer and VAT has crippled my business. I'm unable to add the cost onto my products as what I sell is so competitive. In light of this, I'm handing over around about £1500 every 3 months of my profits to the tax man. When you sell online, hitting the VAT threshold is really easy. In my eyes, when you're selling to consumers then VAT is a tax that inadvertently sabotages your business. The threshold should be based on profits and not turnover. Turnover doesn't come close in reflecting your profits. Basically it's legalized theft...forced taxation.

[Inferno]

Watched a few videos on this and it didnt click, your explanation especially the bit where you give examples on selling price, cost, profit and tax really did it for me. Thanks!

[annafilou]

I wish they’d told me all this at school. Thank you!

[AhsanKhan-fqpq]

what a perfect way to explain VAT in general and simple terms, thank you very much

[bennyvandenbosch]

Thanks for being so clear! It’s damn refreshing 😂

[LiannaLovelle]

I wish the benefits were explained with some numbers like the example. Because it all sounds unbeneficial after hitting £85k i.e. the work around of increasing the pricing to counteract it, whilst making it more expensive for the consumer.

Really great explanation! Thanks

[olivergibbs]

Thank you for this video. Much easier to take in than reading and re-reading.

[Shockak]

Great vid, clearly explained, thank you!!!

[msbeegrouptravel]

Thank you useful information, left me personally a bit low given the extra work it appears i have to but very useful

[matthawksworth]

To clarify, if you purchase goods from another business, you will also receive from them a vat receipt, so that when you charge your 20% to your customer, you can retain the vat amount that your supplier paid the tax man, and then pay the tax man the difference. The reason why this system is used as opposed to a standard sales tax rate as is implemented in the US, for example, is that customers will pay more for products with longer manufacturing processes. For whatever reason that is important, I dont know, but it probably has something to do with more governmental services being used the more times a product changes hands in its manufacturing process. In the USA, you pay for these govt processes whether you use them or not.

[dermann]

Thanks for this. Sharp, Concise, Clarified !

[akucbol]

PERFECT VIDEO! Highly appreciated!
x

[andrewcdavies]

Love the channel. Am I missing something with the application of VAT, as in your example you appear to be applying VAT on top of VAT?

In an imaginary world with no VAT, as per your chair scenario the cost of the wood is £50 and as the manufacturer of the chair the cost of your labour appears to be £40 – resulting in a zero-tax cost for the chair of £90. Hence, the ‘profit’ element of any sale of the chair is essentially cost of your labour – i.e. £40.

If the supplier of the wood is registered for VAT and you as the manufacturer are not registered for VAT, the effect would be a cost for the wood increasing to £60 (£50 material cost plus £10 assuming 20% VAT), an unchanged cost of labour seemingly at £40 resulting in a cost for the chair of £100 and an unchanged ‘profit’ element of any sale remaining at £40. However, while the final net cost of this chair remains at £90 in respect of the materials and labour, if the sale cost is £100 it appears that that buyer is in fact paying a ‘hidden’ VAT cost of £10.

If the supplier of the wood and you as the manufacturer are both registered for VAT, the cost for the wood and your labour should remain unchanged – i.e. £50 plus £40. However, since the supplier of the wood and you as the manufacturer are both charging VAT, wouldn’t the total cost of the materials and labour remain as £90 with a total gross amount of £108 charged – i.e. 20% of £90? In this scenario, the £108 charged for the chair would maintain the £40 ‘profit’ for the manufacturer, it would cover the £50 cost for the wood, cover the £10 VAT to the supplier of the wood and would leave £8 to pay the tax man.

On this basis, I am unclear why your second example contemplates a total cost for the chair of £100 plus 20% VAT – here you are seemingly increasing the cost of the manufacturers labour / ‘profit’ by £10 and change 20% VAT on this additional amount of labour / ‘profit’.

Your rationale does not appear consistent with your final example, where to compete on price the manufacturer sells the chair for £100; effectively reducing their labour / ‘profit’ by 16.675% (from £40 to £33.33).

Considering the apparent overarching principal of VAT, is there anything that would prevent the manufacturer from having multiple companies (some registered for VAT and some not) selling the same product? As it would appear to me that the most efficient strategy would be to have multiple companies below the VAT threshold selling the same chairs at £100 to domestic / residential customers, multiple companies below the VAT threshold selling the same chairs at £120 to domestic / residential customers and a VAT registered company selling the same to chairs to other VAT registered companies at £120.

Finally, if it is possible to obtain a VAT refund on unsold purchases, how is this viewed over time? For example, if a company purchases all if their materials / stock in their first year of trading without making a single sale; how would this be carried forward into the next financial year assuming the company sells all of the originally purchased materials / stock and replenishes it all in their second year of trading?

[RoadmapMBA]

Great video. Really appreciate the knowledge!

[AdrianGonzalez-tgte]

That was a very useful and informational video. Thank you!!

[alihabibi]

If I as an importer, bring in a product which I have paid VAT on after going through customs. For example a product that cost £10 and I have paid a vat of £2 on this products. When I re sell the product for let says £15 plus VAT which works out as £3 VAT being charged to my customers. My question is if I had 100 units it means I have given out £300 worth of vat which my customers will claim back from and I will only get £200 back from the government ?

[adamgreen]

Hi, when you're VAT registered, should you include input VAT when pricing your goods? For example, if I buy an item from a wholesaler for £30 including VAT (£25 + 20% VAT)) should I add my mark-up on top of the £25 because the VAT I pay I will get back? Currently I am not VAT registered so when I price my goods I add my mark-up on top of the price I paid for the product including the input VAT as I cannot claim this back. Also, when paying my vat bill, would I pay 20% on the profit on each transaction or would the VAT be on the total revenue? For example if I sold a product for £50 and earnt £20, would I pay VAT as 20% of £50 (the total cost) or on the £20 (the profit) Thank you

[gavp]

Hi there, do you have a video on the change in VAT rules from 2021? In particular, regarding overseas sellers that sell within the UK

[stanleychukwu]

Need your opinion, am self employed kitchen fitter and a contractor for kitchen retail company where cis is deducted at payment, though not VAT registered but the company deducts cis and vat before payment, what are your thoughts

[MrTurd-mcee]

I went over 85k sale do needs to regoster for vat now. Good video good explanation