As if I would countenance anything else...
VAT - why pay it?
- Thread starter Boneman
- Start date
Zero-rated is taxable, but at the zero-rate - but the rate may be changed by the chancellor.
Exempt is simply that - exempt and not subject to rate change.
Well, unless the Chancellor decides to make it non-exempt.
My murky peering-through-the-mists-of-time understanding of the main difference is that someone making zero-rated outputs (sales) can claim back VAT on their inputs, leading to a net refund, whereas this doesn't apply for those with exempt outputs.
Ah, all my old passion for accountancy is coming back ...zzzzzzzzz
Sorry to resurrect this thread from the dead, but I self-published a couple of months ago and have recently started worrying a bit about this.
I publish directly through Amazon (which I'm near certain indicated it pays all the VAT/sale taxes but income taxes are down to the author, obviously) and through Smashwords which distributes to everyone it can save Amazon.
e-books are, I think, subject to VAT. My turnover is, alas, far short of the £77k threshold for it, so am I ok just leaving it alone? I don't think I need to register, but if you don't register does that also mean you don't pay VAT at all?
I publish directly through Amazon (which I'm near certain indicated it pays all the VAT/sale taxes but income taxes are down to the author, obviously) and through Smashwords which distributes to everyone it can save Amazon.
e-books are, I think, subject to VAT. My turnover is, alas, far short of the £77k threshold for it, so am I ok just leaving it alone? I don't think I need to register, but if you don't register does that also mean you don't pay VAT at all?
I'm no expert, but I run a small consultancy... when you get to point you have to pay VAT, it is the business that pays this, and you can then claim the amount you pay against your taxable income. So, if you pay VAT on eg. a new computer, you show that in your accounts and you don't pay tax on that part of your business' earnings.
If you don't register for it, you still pay Vat on products you buy(hidden in the RRP) but you can't claim the tax back on it.
If you don't register for it, you still pay Vat on products you buy(hidden in the RRP) but you can't claim the tax back on it.
Gary Compton
I miss you, wor kid.
- Joined
- Jul 8, 2007
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- 3,247
Okay, this is how it works in a small business!
You are doing more than 77k per year. So you register for VAT.
You buy 120,000 words of me for £1200 + VAT (£240 so total invoice is £1440)
You then sell those words to Boneman for £2400 + VAT (£480 so total invoice is £2880)
You have made a profit of £1200 and you owe the VAT man £240 (£240 claimed back from purchase (Invoice from me) and you owe £480 VAT from your sale to Boneman. So £480 sales tax minus £240 purchase tax = £240 owed.
Now in that payment that is due to HMCE, you can also claim back VAT on petrol, stationery, anything that you have spent to enable you to make that sale to Boneman. So say you spent £120 on diesel then there is £20 VAT in that cost so that can reduce your liability (£240) by £20
If I wasn't VAT registered then I would've charged you £1200 in total, so as there was no VAT in my invoice you would owe the HMCE £480 less diesel claim back
Hope that makes sense. If you can stay under VAT limit, it is usually more beneficial unless you are making fortunes. Then get a good accountant and move your business to Luxenborg
What I'm more concerned about is whether *I* need to register/make VAT payments. I'm pretty sure I don't need to register, but I'm unsure about paying VAT to HMRC.
At present:
I'm a self-published writer
Turnover is nowhere near £77k
E-books are subject to VAT (Amazon pay this bit I'm unsure about the situation with Smashwords)
Also, is the limit like the personal allowance threshold (ie no VAT is payable to HMRC unless you exceed it)?
Edited extra bit: and thanks to those responding, I really do appreciate it.
At present:
I'm a self-published writer
Turnover is nowhere near £77k
E-books are subject to VAT (Amazon pay this bit I'm unsure about the situation with Smashwords)
Also, is the limit like the personal allowance threshold (ie no VAT is payable to HMRC unless you exceed it)?
Edited extra bit: and thanks to those responding, I really do appreciate it.
Last edited:
No, my consultancy turns over a lot less than the threshold (about 25K), and I don't register. Basically, whether a business or an individual we pay the VAT, anyway. Like Gary says, it's each stage that has to repay the government, but they take the same for overall product. There's no benefit to being VAT registered before you have to be.
And no, there's no personal allowance, because it's the individual product that carries the VAT charge, not the business.
EDIT: in fact, the 77k is almost like the personal allowance, it you want to think of it that way. Under it, don't worry. Above it, get an accountant. Immediately. And put away what you owe as you go along.
(where was it you said, Gary. In case I suddenly go alpha...)
And no, there's no personal allowance, because it's the individual product that carries the VAT charge, not the business.
EDIT: in fact, the 77k is almost like the personal allowance, it you want to think of it that way. Under it, don't worry. Above it, get an accountant. Immediately. And put away what you owe as you go along.
(where was it you said, Gary. In case I suddenly go alpha...
)
Only companies that are above the current £77k/year limit have to be registered for VAT - which means they also have to charge it.
If your turnover is less than £77k/year (actually 18 months for HMRC purposes) then you do not charge VAT, even if your product is vatable.
However, if you are expecting any significant income from any business venture, you will need to speak to an accountant to find out whether it would be more tax advantageous to be registered as a limited company rather than a sole trader.
I know nothing about tax other than I got a rebate today. Yay! I'm just here to comment on this:
Cos Smashwords are a U.S. company, you have to fill in the U.S. forms. It's all on their website. You also have to ask them to send you a letter saying... something (I can't remember what now, but I do have that letter somewhere). Basically, it's to say that you're not a US citizen and don't have to give any money to Mr US Taxman. (But the forms are so complicated that despite me having got the letter and the forms and what have you, I've not bothered doing anything about it.)
Cos Smashwords are a U.S. company, you have to fill in the U.S. forms. It's all on their website. You also have to ask them to send you a letter saying... something (I can't remember what now, but I do have that letter somewhere). Basically, it's to say that you're not a US citizen and don't have to give any money to Mr US Taxman. (But the forms are so complicated that despite me having got the letter and the forms and what have you, I've not bothered doing anything about it.)
Gary Compton
I miss you, wor kid.
- Joined
- Jul 8, 2007
- Messages
- 3,247
You don't need to register Thad. You are no where near that yet.
Sometimes its an advantage to register voluntarily if your turnover is under 77k.
Lets say you were buying 30K a year of diesel but selling paperbacks which are zero rated that netted you 65K + 0% VAT.
You owe the VAT man a big fat zero (cos your product has no VAT in its sale price.)
But the 30K you spent driving round the country, flogging your soul, and having a wife in every town, includes 5K Vat. By registering volintarily, you can get that 5 grand back.
Castella time
Sometimes its an advantage to register voluntarily if your turnover is under 77k.
Lets say you were buying 30K a year of diesel but selling paperbacks which are zero rated that netted you 65K + 0% VAT.
You owe the VAT man a big fat zero (cos your product has no VAT in its sale price.)
But the 30K you spent driving round the country, flogging your soul, and having a wife in every town, includes 5K Vat. By registering volintarily, you can get that 5 grand back.
Castella time
Last time I looked, they added VAT to the price of my books sold in the UK. So it's the consumer paying for that, and I don't know who forwards it on to your tax people.
Is that on all your books, Teresa? (The purchaser has to pay VAT on eBooks in the EU.)
Probably only on the ebooks. So that would explain it.
Thanks, everyone. That's a sudden weight off my mind
Mouse, I've seen that super-complicated thingy from Smashwords too. I haven't filled it out yet either.
Mouse, I've seen that super-complicated thingy from Smashwords too. I haven't filled it out yet either.
The bottom line is that if your customer is the man on the street (ie not someone VAT registered), you want to do everything you can to avoid being VAT registered as that effectively makes your prices 20% lower than someone who is, or to put it another way your income is roughly 20% higher that someone who is registered and has to give that 20% to the VAT-man. This is one of the reasons why tradesmen (plumber etc.) like to receive cash, because they just pocket it and don't put it through the books and that helps keep them below the limit.
On the other hand if all your customers are VAT registered then it is worth your while registering voluntarily. Your customers won't care that you are now charging VAT as they just claim it back. So no reduction in your income but now you can claim VAT back on any business expenses. This is the situation that I was in as a freelance software engineer and trainer. All my customers were VAT registered so I registered as soon as I set the business up.
If all your customers are non-VAT registered (typically the man or woman in the street) do not make the mistake of thinking it is worth registering so you can claim VAT back. If you make money doing that then you must be losing money on your business as you would have to be spending more than you are earning.
Now if you as an author are only "selling" to your agent or publisher and not selling direct to the reader then I suspect it would actually pay to be VAT registered. Doing a quick search I saw that, for example, Macmillan Education is VAT registered. So if all publishers are VAT registered they really won't care if you charge VAT on top of your royalties as they'll just claim it back. And now you get to claim VAT back on all your business expenses (petrol, car servicing, assets like computers etc.).
On the other hand if all your customers are VAT registered then it is worth your while registering voluntarily. Your customers won't care that you are now charging VAT as they just claim it back. So no reduction in your income but now you can claim VAT back on any business expenses. This is the situation that I was in as a freelance software engineer and trainer. All my customers were VAT registered so I registered as soon as I set the business up.
If all your customers are non-VAT registered (typically the man or woman in the street) do not make the mistake of thinking it is worth registering so you can claim VAT back. If you make money doing that then you must be losing money on your business as you would have to be spending more than you are earning.
Now if you as an author are only "selling" to your agent or publisher and not selling direct to the reader then I suspect it would actually pay to be VAT registered. Doing a quick search I saw that, for example, Macmillan Education is VAT registered. So if all publishers are VAT registered they really won't care if you charge VAT on top of your royalties as they'll just claim it back. And now you get to claim VAT back on all your business expenses (petrol, car servicing, assets like computers etc.).
In terms of books, the book itself (printed books) is non vatable. But anything that carries a VATable item, like a cd, or a nice crystal stone for meditation, or whatever carries a VAT value on that item. Hence, most big book companies will be vat registered, but the product you're providing to them isn't eligible for VAT. I don't know if this changes things or not, under Vertigo's model?
No, Springs, so long as the publisher is registered they can claim back any VAT charged to them. And of course it is complicated further now by the bizarre decision to make eBooks vatable. I still think that is an outrageous decision.
It's easy to see why they did it, though: it's relatively painless (because ebooks should be a at least a little bit cheaper than paper ones, so the customer isn't paying 20% more); as ebooks take over from paper books, the government gets a new incomes stream.
Basically it's one of those stealth taxes (a real one, not just one defined as such by the Daily Mail/the Taxpayers Alliance/someone writing a column in a "newspaper").
Yes I agree Ursa and I can see absolutely no justification for it whatsoever.