Hi, I"m Graham from Inca Chartered Accountants. In this video I"m going to talk about how you can make money from VAT. VAT is all about your sales. The threshold is £73,000. If you"re rolling 12 months sales exceeds that limit you have to register for VAT. The key word in that is rolling. It doesn"t operate on 1 financial year to the next basis. It operates on a rolling 12 months. Soon as you tip over, you have to register.
What I"m interested in is registering early on a voluntary basis. Before your sales get anywhere near £73000 a year. Why would you want to do that? Well it a lot of cases you can actually make a lot of money from it. If you are selling to other businesses and those businesses are VAT registered then your sales are no more expensive now than they would be if you weren"t VAT registered. On the plus side expenses you incur running the business suddenly become cheaper. There are lots of things you may buy which have VAT on them. Mobile phone bills, internet, computer equipment, desks and chairs, even dare I say Accountants bills. All of those things become cheaper if you are VAT registered.
Now that can save you around about a sixth of the cost when you add that up over a quarter, over a year that"s quite a substantial saving and that"s extra profit for you. Money that you don"t have to go and generate in sales elsewhere. So when you are in a situation where you are selling to other businesses think carefully about VAT registering nice and early would benefit you and make you some money.
Now there is another line to the VAT side. If you happen to be in professional services you may not buy a lot, month on month for your business – a bit of mobile phone, a bit of internet. There is a scheme called the flat rate scheme and its particularly useful for biusinesses who are in professional services who don"t have a lot of expenditure. Its also really easy to operate because you are only looking at the VAT on your sales.
You can forget about the purchases side. Its all about calculating VAT on your sales and paying over a particular amount that is based on your profession. And that"s the important bit, its based upon your profession. The rate you pay across is different from one type of business to another. Getting the right type of business can make you quite a bit of money ever quarter. We have clients who are making £600, £1000, £2000 a quarter through nothing more than having the correct business type and being on flat rate VAT scheme. That"s money directly into your pocket care of HMRC.
Flat rate VAT isn"t for everyone. If you are selling overseas it may not be beneficial to you and if you are making losses it probably isn"t with sales particularly low. So you need to think carefully about the ratio of your purchases to your sales and then decide which scheme is best for you.
So what is the next step? Well registering for VAT is relatively straight forward. It can be done online or by your accountant. The important thing is record keeping. But then you probably know that about running a business anyway. Keep your receipts whether you are on the flat rate scheme or not, get VAT receipts, VAT invoices, keep a record of your income and expenditure. And from that reporting your VAT should be pretty straight forward. In the next video I"m going to talk about how much tax you have to pay.