FINANCE

Beware Of The

By Jamie Crampton W

e all think we know what VAT is, but how much do we really know about VAT and its effects on a business? A brief overview of VAT tells us that VAT, unlike income/ corporation tax, is unavoidable for most people.

It is a direct tax not based on how much you earn, but on how much you spend. VAT was introduced in 1973 to replace the old “purchase tax” and has at various times been charged at differing rates, the current rates being zero (mainly on food and “essential items”), 5% (on “domestic (for home use) fuel”, and 20% for anything else coming into the broad scope of VAT.

If you are a business then the rule for VAT is simple. Once your turnover in a 12 month (or shorter) period exceeds the VAT registration limit of £79,000 then you must register for VAT and charge VAT on anything that you sell, provided it is classified as a taxable supply. Most businesses in the sporting world will find that their services, in general, are a taxable supply and therefore subject to VAT. Once you are VAT registered then you can reclaim VAT on any taxable business-related expenditure that you incur such as stationery, fuel, telephone. You will need to keep receipts for anything that you intend to claim as a business expense and,

Current charge of VAT

VAT @ 20% Net received

£ 50 per hour inclusive of VAT

£ 8.33 £ 41.67 This is the amount received with VAT deducted.

Finally I have received a question from a REPs member regarding claiming of REPs fees as an expense on a Self Assessment form under the category of “professional fees”. REPs membership does not fit the criteria of “professional fees” and cannot be claimed under that category; however you should be able to claim it under “membership fees” as belonging to a trade organisation.

THE AUTHOR

Jamie is a qualified Management Accountant and owner of Accounting 4 Fitness, dealing with clients in the fitness industry. He is also owner of A4F Business Training, providing business education to small business owners (www.a4f.co.uk).

if claiming VAT, these receipts would need to clearly show the vendor’s VAT registration number.

If your turnover (sales) begins to approach the £79,000 you may wish to consider the VAT implications – usually when selling to the direct public the majority of your clients will not be VAT registered and would be unable to reclaim the VAT charged if it were added to your costs.

In this case you may consider “absorbing” the VAT and not increasing your prices – this would reduce your income by 17%, as in the following example:-

Current charge of VAT

VAT @ 20% Total charge

£ 50 per hour exclusive

£ 10 £ 60

Although your charge increases you will only receive £50 – the rest goes to HMRC.

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The REPs Journal 2013;28(September):24