January Question and Answer Corner
Newsletter issue - January 07.
Q. I'm starting a new business as a plumber and don't know if it would be a good idea to register for vat. Can you advise?
A. It is only compulsory to register for VAT if your annual cumulative turnover to the end of any month exceeds £61,000 or if you expect your turnover to exceed this in the next 30 days. So it is likely when starting you will not have to register but you should keep an eye on your turnover every month to monitor this. By registering, you have to add VAT onto your outputs (sales) which if supplying non vat registered businesses or people such as the general public will put you at a competitive disadvantage and is generally not advisable if this is your main customer base. However, the advantage of registering will come if you are supplying mainly vat registered businesses who can reclaim the vat and it largely doesn't matter to them whether you charge vat or not. By being registered you can then reclaim input vat on purchases and services including on any goods purchased within 3 years before registration, although this doesn't include any goods consumed before registration such as electricity but it does not apply to trading stock and capital assets such as equipment. For services, you can only go back 6 months. A vat registered business may also have more credibility with potential customers. To register voluntarily it will be necessary to satisfy HMRC that you are on intend to carry on a business making taxable supplies.
Q. The taxman has selected me for an enquiry, has had all my books and records and now wants me to have a meeting with him. Do I have to go?
A. Meeting the taxman can be a worrying process and if you are doing so it is vital that you are properly represented at the meeting. Under no circumstances should you attempt to go alone. However, there is no legal obligation for you to attend and you are within your rights to refuse to attend and deal with the enquiry through correspondence, saying you will be better able to consider the questions and give a fuller response that way. However, a meeting can often help to resolve matters more quickly and is a sign of co-operation that can help to reduce any eventual penalties should tax be found to be owing. You should ensure you are being advised by an accountant experienced in enquiry work as the right approach will vary depending on the client. Ensure an agenda is requested prior to any meeting and fully prepare beforehand. At the meeting you do not have to answer questions there and then. Do not be pressured into answering questions you are not certain of the answer to and ask them to be put in writing for you to consider.
It's also worth pointing out that there was also no legal obligation for you to send all your books and records to the taxman. For example it may be better to have him inspect the records at the office of your accountant.
Q. I've sold a lot of unwanted Christmas presents on Ebay and I remember reading something about paying tax on what you make on Ebay. That doesn't seem fair.
A. What HMRC say is that if you are trading online using Ebay, you will be liable to tax on your profits. Even if your profits are below the level of personal allowances you should still inform them that you are trading. However, the receipt of unwanted presents and then selling them would not be considered to be a trade and nor would the sale of any other unwanted personal goods if they were not bought with the intention of making a profit. A trade is where you buy the goods with the intention of selling them on at a profit and this occurs no matter the extent of it. So even if you did a bit with just a couple of items in the run up to Christmas to make some more money for Christmas, that is trading. In practice, it's likely HMRC are only going to go after the more substantial cases.