Registering for VAT doesn’t seem worth it?

[PR Cleaning Solutions]

Hey guys, I’m very busy with work, I’m able to easily make up to €37,000 a year now, I’d like to make more money but if I go over the €37,000 I have to register for VAT.

So for example if I made an extra €13,000 and made €50,000 in the year, I would have a VAT bill of €6,750 which is basically over half of that extra €13,000 gone, not to mention paying income tax on the remainder.

So I would be earning an extra €13,000 but only getting about €4,000 of it after VAT and Tax. Am I missing something? It seems like registering for VAT isn’t worth all the extra hard work for very little extra income after all vat and taxes are paid??

 

[ched999uk]

Is your Vat threshold that low, England threshold is about £85K.
There are also schemes where you just pay a fixed rate and can't claim any vat you pay of stuff, I think that's about 8% total.
Might be worth having a chat to a good local accountant to see if there is a better way to increase your income without losing so much?

 

[Part Timer]

If you're only doing residential work then you either have to raise your prices to cover the VAT, or some of it, or stand the cost yourself. If however you're doing commercial work with VAT registered companies you just charge them the extra as they can claim it back. Is the VAT rate in Ireland 13.5%

 

[Windowcleaningfleet]

Which country are you from please?

 

[Iron Giant]

The grown up's use laptops, @PR Cleaning Solutions is based in Ireland

 

[Daniel Perkins]

I'm based in Dublin and I registered for VAT years ago. It's a bit of an inconvenience as you are essentially collecting money for the revenue. €37500 you are supposed to register although my accountant says you can go beyond that slightly. I don't mind the VAT at all to be honest, I used to stress about going into VAT back in the day but I'm use to it now but yip you earn more, you pay more tax unfortunately. I had to go in to VAT as I have a lot of commercial gigs and it does look a bit unprofessional if you are invoicing big companies and there's no VAT on it.

Nobody bats an eyelid when you add the 13.5% on especially commercially. Residentially I just add it into the price and don't mention a thing to people about it, they don't care anyways as they can't claim it back anyways. I bought a van and was able to claim the 5k back which was great, same goes for all equipment/workwear etc. I go every 2 months to accountant have it all done for her and drop folder in post box & she emails me how much I owe & it goes directly out of my account. I found it hard initially to get into my head that the VAT isn't actually mine, it's just on loan lol... I do still be gutted when it's taken out

Residentially people don't care about VAT but for commercial work that requires an invoice and is above board... they seem to expect it. If you have any questions just gimme a message and I'll answer as best I can.

 

[PR Cleaning Solutions]

Which country are you from please?

Ireland

 

[Windowcleaningfleet]

Ireland

Such a low threshold!

 

[scottish cleaning service]

I'm based in Dublin and I registered for VAT years ago. It's a bit of an inconvenience as you are essentially collecting money for the revenue. €37500 you are supposed to register although my accountant says you can go beyond that slightly. I don't mind the VAT at all to be honest, I used to stress about going into VAT back in the day but I'm use to it now but yip you earn more, you pay more tax unfortunately. I had to go in to VAT as I have a lot of commercial gigs and it does look a bit unprofessional if you are invoicing big companies and there's no VAT on it.

Nobody bats an eyelid when you add the 13.5% on especially commercially. Residentially I just add it into the price and don't mention a thing to people about it, they don't care anyways as they can't claim it back anyways. I bought a van and was able to claim the 5k back which was great, same goes for all equipment/workwear etc. I go every 2 months to accountant have it all done for her and drop folder in post box & she emails me how much I owe & it goes directly out of my account. I found it hard initially to get into my head that the VAT isn't actually mine, it's just on loan lol... I do still be gutted when it's taken out

Residentially people don't care about VAT but for commercial work that requires an invoice and is above board... they seem to expect it. If you have any questions just gimme a message and I'll answer as best I can.

Seems a very low threshold. I would expect it to be 100k euros.

 

[tommywilliams88]

You’re looking at VAT all wrong. It’s not a tax burden the way you’re making it out to be similar to income tax, i.e as in you said earn if you earn an extra €13k you’ll have a bill for £6k.

If you earn an extra £13k you would be billing £13k + £2,600 VAT (20%), and then you pay that to HMRC. Don’t look at it as though you’re billing £15,600 and being taxed 20%. You’re being hit with a bill but it doesn’t impact your bottom line, unless you’re spending the VAT money you’re receiving, which isn’t wise given the penalties you can face.

 

[scottish cleaning service]

You’re looking at VAT all wrong. It’s not a tax burden the way you’re making it out to be similar to income tax, i.e as in you said earn if you earn an extra €13k you’ll have a bill for £6k.

If you earn an extra £13k you would be billing £13k + £2,600 VAT (20%), and then you pay that to HMRC. Don’t look at it as though you’re billing £15,600 and being taxed 20%. You’re being hit with a bill but it doesn’t impact your bottom line, unless you’re spending the VAT money you’re receiving, which isn’t wise given the penalties you can face.

I thought Vat was Customs & Excise.

 

[ched999uk]

I thought Vat was Customs & Excise.

As of 1 January 2021, tax, Vat and Excise duty all come under HMRC.
Customs, VAT and Excise UK transition legislation from 1 January 2021

 

[scottish cleaning service]

As of 1 January 2021, tax, Vat and Excise duty all come under HMRC.
Customs, VAT and Excise UK transition legislation from 1 January 2021

Probably cost cutting by UK Gov.

 

[tommywilliams88]

You’re looking at VAT all wrong. It’s not a tax burden the way you’re making it out to be similar to income tax, i.e as in you said earn if you earn an extra €13k you’ll have a bill for £6k.

If you earn an extra £13k you would be billing £13k + £2,600 VAT (20%), and then you pay that to HMRC. Don’t look at it as though you’re billing £15,600 and being taxed 20%. You’re being hit with a bill but it doesn’t impact your bottom line, unless you’re spending the VAT money you’re receiving, which isn’t wise given the penalties you can face.

Also, forgot to add, you can offset and claim back on your VAT bill, as in if you have received £6k of VAT from the sale of goods / services, but you’ve paid £4K worth of VAT on purchases you’ve made, your VAT return will be £2k.

 

[ched999uk]

You’re looking at VAT all wrong. It’s not a tax burden the way you’re making it out to be similar to income tax, i.e as in you said earn if you earn an extra €13k you’ll have a bill for £6k.

If you earn an extra £13k you would be billing £13k + £2,600 VAT (20%), and then you pay that to HMRC. Don’t look at it as though you’re billing £15,600 and being taxed 20%. You’re being hit with a bill but it doesn’t impact your bottom line, unless you’re spending the VAT money you’re receiving, which isn’t wise given the penalties you can face.

It depends, if you already have £13k of domestic work and you go over the threshold then you have to give 20% of your turnover (minus vat paid) to HMRC.
Basically you either take a hit of 20% or as soon as you get close to the threshold you have to increase your prices by 20% to maintain your profit.

As you say for commercials it's no big deal to add 20% vat to your price as the companies just off set your vat against theirs, so to speak.

The difficult bit is the transition especially if it's unplanned on domestic work!

 

[tommywilliams88]

It depends, if you already have £13k of domestic work and you go over the threshold then you have to give 20% of your turnover (minus vat paid) to HMRC.
Basically you either take a hit of 20% or as soon as you get close to the threshold you have to increase your prices by 20% to maintain your profit.

As you say for commercials it's no big deal to add 20% vat to your price as the companies just off set your vat against theirs, so to speak.

The difficult bit is the transition especially if it's unplanned on domestic work!

When you say over the threshold you have to pay 20% minus VAT paid - what is the 20% payment you’re referring to?

VAT is a stand-alone added tax, not a deducted tax

 

[tommywilliams88]

It depends, if you already have £13k of domestic work and you go over the threshold then you have to give 20% of your turnover (minus vat paid) to HMRC.
Basically you either take a hit of 20% or as soon as you get close to the threshold you have to increase your prices by 20% to maintain your profit.

As you say for commercials it's no big deal to add 20% vat to your price as the companies just off set your vat against theirs, so to speak.

The difficult bit is the transition especially if it's unplanned on domestic work!

Or are you talking from a self-employed point of view as opposed to Ltd company?

 

[ched999uk]

When you say over the threshold you have to pay 20% minus VAT paid - what is the 20% payment you’re referring to?

VAT is a stand-alone added tax, not a deducted tax

You are correct it's an added tax.

If most of someone/companies work is domestic and has been running a while then pricing probably wasn't setup with vat in mind. So if they breach the threshold they have to pay HMRC 20% of their income (minus vat expenditure) as they weren't charging vat to customers or put up their prices by 20% (vat rate in UK, OP was Irish).

It probably doesn't happen to many and a lot would do all they can to stay below the threshold.
Obviously if you setup with a view to braking the Vat threshold your pricing would include Vat for your domestic customers.

 

[tommywilliams88]

You are correct it's an added tax.

If most of someone/companies work is domestic and has been running a while then pricing probably wasn't setup with vat in mind. So if they breach the threshold they have to pay HMRC 20% of their income (minus vat expenditure) as they weren't charging vat to customers or put up their prices by 20% (vat rate in UK, OP was Irish).

It probably doesn't happen to many and a lot would do all they can to stay below the threshold.
Obviously if you setup with a view to braking the Vat threshold your pricing would include Vat for your domestic customers.

Ah… I see what you mean now - taking the hit of VAT to preserve the price for the customer, instead of upping prices ??

 

[Part Timer]

Or are you talking from a self-employed point of view as opposed to Ltd company?

The VAT rules are the VAT rules no matter what you are, sole trader, partnership, Private Ltd Co or a Public Ltd Co

 

[tommywilliams88]

The VAT rules are the VAT rules no matter what you are, sole trader, partnership, Private Ltd Co or a Public Ltd Co

I know it is. That question I asked about from a self employed perspective wasn’t to do with VAT ??