SOUND ON SOUND

[N i g e l]

you most likely won’t have received the monies for goods sold in the most recent month or the whole quarter when that involves goods and/or services to other companies that usually expect to pay quarterly.

Cash flow is business. Thats why the "Generic70sSynthCo" became incredibly sucessfull and then went bankrupt because they paid for materials + labour + shipping but had to wait for the payments on sold goods.

[Hugh Robjohns]

...the real problem comes when you’re selling to the public and you’re competing with non VAT registered traders who can afford to charge the same or slightly less than your VAT inclusive price and make <20% more money than you.

This is true, and it's why I object strongly to the ludicrously high VAT threshold of £85k in the UK. Our European colleagues mostly have a mandatory registration threshold of around €10k which is a far more sensible cut-off between back-bedroom hobby-businesses and genuine commercial enterprises.

If you are registered but having a difficult time trading you still have to pay VAT quarterly and that might bankrupt you...

Only if you are incompetent!

The VAT portion of your invoices is not your money. You simply collect it, keep it ring-fenced for a couple of months, and pass it on to HMRC. If your business is using -- and worse, reliant -- on the collected VAT component for cashflow the business is (a) not viable and (b) not being managed properly!

[ef37a]

...the real problem comes when you’re selling to the public and you’re competing with non VAT registered traders who can afford to charge the same or slightly less than your VAT inclusive price and make <20% more money than you.

This is true, and it's why I object strongly to the ludicrously high VAT threshold of £85k in the UK. Our European colleagues mostly have a mandatory registration threshold of around €10k which is a far more sensible cut-off between back-bedroom hobby-businesses and genuine commercial enterprises.

If you are registered but having a difficult time trading you still have to pay VAT quarterly and that might bankrupt you...

Only if you are incompetent!

The VAT portion of your invoices is not your money. You simply collect it, keep it ring-fenced for a couple of months, and pass it on to HMRC. If your business is using -- and worse, reliant -- on the collected VAT component for cashflow the business is (a) not viable and (b) not being managed properly!

Bit OT but this feeds into something I have always thought Hugh when watching "The Sheriffs are Coming". So many companies (mainly garages!) CLAIM they have not got access to a couple of grand or even less. Naturally the sheriffs rarely believe them and the debter finds the cash at the 11'59th hours! Usually by the time extra costs have been loaded on!

It seems very unlikely to me that so many builders/ car firms are THAT low in liquidity!

Dave.

[Hugh Robjohns]

If you’re VAT registered you have no choice but to charge it.

Obviously...

If you trade below the VAT threshold but have chosen to register you can de register but that can’t be done retrospectively.

Obviously... because you've previously invoiced and charged customers VAT.

...you most likely won’t have received the monies for goods sold in the most recent month...

That's why they give you a month and a bit before having to pay. If you have a declared policy term of 'Payment within 30 days' on your invoices there's no problem.

If you have problems with slow-paying clients there is an alternative scheme. Rather than using the Standard Accounting form of VAT, you could switch to the Cash Accounting option where you only pay VAT once you have been paid.

https://www.gov.uk/vat-cash-accounting-scheme

I would advise talking with an HMRC advisor and/or your accountant.

[MOF]

This is true, and it's why I object strongly to the ludicrously high VAT threshold of £85k in the UK. Our European colleagues mostly have a mandatory registration threshold of around €10k which is a far more sensible cut-off between back-bedroom hobby-businesses and genuine commercial enterprises.

I didn’t know that, makes a lot more sense.

The other thing you have to be careful of is monthly and yearly thresholds being triggered for VAT.

[MOF]

t seems very unlikely to me that so many builders/ car firms are THAT low in liquidity!

I don’t know about garages but nearly every time I watch Grand Designs there are tales of builders and suppliers going under taking the deposits with them.

If your business is using -- and worse, reliant -- on the collected VAT component for cashflow the business is (a) not viable and (b) not being managed properly!

A lot of businesses do the vast majority of their business in December.

I think that removing VAT, which was much less than 20%, I remember 8%, and it would encourage more purchasing of goods and services with money that has already been taxed.

[ef37a]

"I don’t know about garages but nearly every time I watch Grand Designs there are tales of builders and suppliers going under taking the deposits with them."

And therefore HAVE liquidity! Let's call a spade a spade (!) These people are either very incompetent, irresponsible with money (especially other peoples!) or most likely crooks.

Dave.

[Hugh Robjohns]

Let's call a spade a spade (!) These people are either very incompetent, irresponsible with money (especially other peoples!) or most likely crooks.

There a lot of all of that about... :cry:

[Sam Spoons]

I've just (finally) got around to ordering a combo shell/cab for my 18 watt chassis* and the builder has put me on his waiting list. I asked how much deposit he wanted and he replied, "none, just pay me when its finished". :thumbup:

[N i g e l]

I think that removing VAT, which was much less than 20%, I remember 8%, and it would encourage more purchasing of goods and services with money that has already been taxed.

maybe but VAT is a tax and it raises revenue for the GOV to spend. If they had less VAT they would just have to get revenue from somewhere else, like higher income tax.
Theres always a question of skewing taxs one way or another to benifit the rich/poor and of course being a bit sneaky, claiming income tax wont rise but bumping up VAT
"Chancellor George Osborne said the move was more "progressive" than a hike in income tax or National Insurance"

[Hugh Robjohns]

...VAT, which was much less than 20%, I remember 8%...

It's varied enormously over the years, but the last time standard rate VAT was 8% was over 40 years ago! :shocked:

VAT was introduced in 1973 when we joined the EEC, initially at the rate of 10%, and it replaced a 'Purchase Tax' system which added between 13 and 55% to the wholesale price of different items.

Standard rate VAT went down to 8% for about five years from 1974 to 79, and then up to 15% from 1979 to 1991.

I first registered for VAT in April 1991 and the standard VAT rate then was 17.5%. It went down to 15% for a year in 2008, but back up to 17.5% in 2010 before rising to the current rate of 20% from 2011.

[Sam Spoons]

For a while in IIRC the '70s there was dual rate VAT, initially 12.5% for 'luxury' items (including road fuel) and 8% 'standard' for the rest with the higher rate going up to 25% for a while before falling back to 12.5%. I worked in retail at the time selling musical instruments, electric guitars and electronic keyboards were 'luxury' goods but acoustic guitars and pianos were not and attracted the lower 8% rate.

What did shock me when I googled to check those figures was that between 1943 and 1946 purchase tax was 100%!

[MOF]

Standard rate VAT went down to 8% for about five years from 1974 to 79, and then up to 15% from 1979 to 1991.

The point is it’s a tax that has grown at roughly 2.5% each time over the years, so now you have to pay one fifth on top, up front.
For people on low incomes it hits them harder. If there was no VAT then they would have more money being spent on more and/or a wider range of goods.
People selling those goods would have a higher turnover, make more profit and then pay more tax.

[Sam Spoons]

Actually it has grown with fluctuations from 10% to 20% in 58 years. At the same time other taxes have varied significantly. The other main point is that for products bought and resold the actual VAT cost is only equivalent to 20% of the profit margin, buy a guitar for £200, you pay £240 inc VAT, you sell for £300, i.e. £360 inc VAT, net VAT (i.e. what you pay the government) is £20.

But, as somebody said earlier, the gov. has to raise revenue and if VAT was lower something else would have to be higher. At least with VAT you have some control over how much you pay, buy less stuff and you pay less VAT...

[blinddrew]

There is an argument that VAT is one of the most 'progressive' taxes because it is, ultimately, a tax on consumption. Use less, pay less tax.
The counter-argument is as MOF suggests though, those at the lowest pay scales inevitably spend all their money on subsistence and are therefore effectively taxed at higher rate than those who can afford to save or invest a proportion of their income.