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VAT - A Blessing in Disguise?

Posted On - 15/01/2016 08:23:03

A Tax that's Good for Business?!

"In this world nothing can be said to be certain, except death and taxes": Benjamin Franklin 1789.

True: few things are definite.

True: the unavoidable can't side-stepped.

So, when it comes to paying tax if you're good at what you do true: VAT will come your way. But won't finding the money cripple your business? Absolutely not true.

To explain this, we staged a special small business VAT session at our 2015 Open Day. If you're already registered for VAT this session may not be for you. But if you're not or just interested to find out, read on…

Fear and loathing

A phobia is an anxiety disorder. It's a fear of something the sufferer tries to avoid, often at disproportionate cost. So much so, their behaviour is perceived as irrational.

So what? Well, if it existed, we'd coin the word Vatophobia. That's right, from the questions we get asked, the comments getting made and how people react when it gets mentioned, there's a phobia over VAT out there and it's alive and well.

Can't hear, won't hear

Phobophobia is an anxiety over the fear a phobia will create. And while we're not trying to scare you, could some of you have Alethephobia? It's a fear of the truth.

The truth about VAT is this: it's a tax you must pay if your VAT'able turnover exceeds £82,000 (VAT threshold Jan 2016). The truth is also: yes, it is a new cost you haven't had to pay before. But, the truth is also: you don't have to raise your prices 20% to cover it – in fact 12% may well be adequate. And it's also: becoming VAT registered opens the door to huge amounts of new business you couldn't get before.

Still Alethephobic? Better read on then.

To bring to life the real impact of VAT registration, we ran some numbers - it's the only way to get away from the rumours and guesses about VATDifferent perspectives on VAT

To bring to life the real impact of VAT registration, we ran some numbers - it's the only way to get away from the rumours and hearsay about it.

Using data on business mix and mark-ups across retail/services (thanks to those who helped) we calculated gross profit at the VAT threshold. In other words we worked out how much money a typical business makes at the point it must register. And that's an important number, because it's the baseline for comparisons. 

Once we had that we could work out the ‘cost' of VAT registration. We did this three different ways: increase prices 20%; take the hit (keep prices the same, no change); and change prices so profits after registration remain the same as before. Want to know the results? Watch the video.

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