Our Manchester accountants have encountered several instances of businesses that believe they are operating below the mandatory VAT threshold, but actually are not.
Most business owners are probably aware that if your total sales exceed £81,000, you are required to register for VAT.
However, you might not be aware that if you are buying services in from Europe, the cost of these services must be added to your turnover.
This means that if you use, for example, £3,000 of Google AdWords advertising on top of £79,000 of sales, the total of the two combined would be £82,000 – and you must register for VAT.
You should also be aware that some online marketplaces such as Amazon and eBay are based in Europe, meaning you must add the value of their services on top of your sales figure.
If, for example, you have sales receipts from Amazon of £72,000, following a £5,000 deduction of Amazon fees, your total would be £82,000 because you must add together your sales receipts (£72,000), Amazon fees (£5,000) and value of services from Europe (£5,000) together – and, again, you must register for VAT.
VAT as a whole and in particular the combination of actual turnover, plus value of services from Europe, can be complicated and is not always understood by small traders from customs notices.
It’s important that you register when you reach the threshold because if not you will be required to pay back any historical VAT. This could have a huge impact on cash flow and tight profit margins. Going forward you can take VAT into consideration in your pricing strategy but can do nothing about your past prices and could face a loss if you were not VAT registered when you should have been.
If you are unsure about your total sales with regards to the VAT threshold, Crawfords Accountants, Manchester, can help you to calculate the correct figure – and can advise you on becoming VAT registered, if it is necessary to do so. We have many years’ experience offering advice in this area. Give us a call today – 0161 828 1000.
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