business explained

I’m just going to give you a wide overview and in the majority of circumstances rather than looking at specifics so to start with what we should say is v80 is a consumer tax an indirect tax as it’s known and all that means is that it’s paid by the people buying the products and the services

products and the services 

ultimately those v80 registered businesses in the chain aren’t really paying it but they are acting as tax collectors for the government which we shall explain shortly so it’s actually you the end user that ends up paying vat so something that’s always interesting to me is people pay every day and don’t really realize it you know some of your shopping will have it on there you know if you buy tv your tv is going to have it on there 

 Types of Services

 i have I’ve got on there but people don’t really get upset about it but it’s interesting when they’re displayed on something like they’re buying a new boiler say or they’re getting a builder to come in and build something in their home they can then see the extra v80 on the invoice and they start to get a bit concerned about it but it’s interesting that that seems so different depending on exactly where you see this v8 and whether it’s hidden or not so yeah you pay every day on everything you probably just don’t realize it so here in the uk we’ve got quite a high threshold as it’s known and all that means is that businesses don’t have to register for v8 until they reach at least 85 000 pound in a 12-month period now that’s quite an important thing the fee 80 threshold and it’s probably another video and another tip but it’s very easy to get yourself caught out but if you just think about when you get to around 85 grand in a 12-month period for the

 First Time Business Have to Register

 Businesses have to register you can actually do less than that and register you can register from day one with no turnover if you like as long as you’re trading and sometimes there’s some really really good reasons to do that and generally what we find is as a general rule if you’re dealing with the public it’s not necessarily a good idea to register from day one but if you’re dealing with bigger v80 registered businesses that don’t care about the v80 you’re charging for the reason I’m going to explain then often it makes sense to register from day one so the way it works is just imagine you as a consumer you’re paying all this extra v80 to the business so if you imagine using an example of 120 pound TVs nice cheap tv every 20 pounds that the business is collecting they’re going to hand over each quarter month year depending how they do their vat 

Various Different Options to Revenue

 various different options to revenue and customs so they’re just collecting it on your behalf what they’re able to do though is they’re able to offset any v80 that they’ve paid out before they hand it over which basically means they get to reclaim the vat it does feel like a reclaim because most the time they’re still handing money to the government however it’s a lot less than the money they’ve collected on their behalf so that’s quite 

Important Concept

 it can be good to vat register is because you can reclaim your v8 you’re incurring so you know quite often that’s mobile phone bills if you’re in business it’s going to be things like accountants some rent lots of different things that you’re going to incur the 80 on if you’re in the building game you know your building materials have got it on now it’s a good point to say there are some things that the government set and say they’re zero rated so they are vatable services um it just happens to be that there’s zero percent vat on them and then some things are outside of v80 some things are exempt in v8 and ultimately you just don’t pay v80 on them there’s a lot of technical reasons 

Different and Important

different and important but for now there are some things that you won’t pay vat on and there are some businesses as a result that charge services that are exempt from vat that can’t be vat registered so not all businesses must be vat registered in different circumstances so for you it’s worth checking with a professional to make sure where you sit with that but for the majority of people when you get there when you get to the 85k limit you’re going to have to have review on your own figures in your own pricing to make sure that’s okay because you get 30 days to register from the point that you get there so let’s do 


 how v80 works in practice let’s choose a handcrafted handmade chair now the chair normally sells for a hundred pound and the materials the wood that’s used to make it sell for 60. now when we look at the receipts in detail we see that the wood for the chair is actually 50 pounds plus that that’s the breakdown on the receipt so but still the business is paying 60 pounds so you’ve got 100 pound take away 60 pound equals 40 pound so they’re making 40 pound now if they were to v80 registered tomorrow their hundred pound would become 120 pound chair and their wood that they’re buying is still 60 pound so what happens is they get the 20 pound extra from the customer and they’d normally hand that over but because they’ve incurred 10 pound on this chair on the wood they’re able to offset the 10 pound so they have 20 take away 10 they hand over 10 pounds to the tax man sounds really good and as a result what then happens is they’ve made 50. so they’ve still got their original 100 pound and their cost is now only 50 pound because they’re able to offset this extra 10 pound from the tax man well the keen id there of you will have noticed that of course you’re now charging the customer 120 pound that they might not be very happy about 

Pricing Issues

so as a result if you’re dealing with the public as we mentioned earlier this can cause some pricing issues because if the person down the road is selling the same chair for 100 because he’s not v80 registered and you’re 120 some customers are going to ask the question about whether they should be shopping with you or them and of course at that point it’s then looking at different ways to differentiate yourself as a business to make sure that people want to come and shop for you for more reasons than just pure price however you could of course still sell


it for 100 pounds now the impact of that means that the taxman is still going to take some vat money from that hundred pounds so if you work it backwards what it really means is you’re now only charging 83 pound 33 for the chair so when you when you charge 100 pound you’re going to take 16 pounds 67 and hand that to the v8 man and again you’re going to be able to offset your 10 pound from your wood that you’re buying so you’re only handing them over 6 pound 67. however, you’ve only taken roughly 83 pounds so you think you’ve got 83 pound in 50 pound of cost you’re only now making 33 quid instead of the 40 in the original example or the 50 in the other example so you can see pricing is one of those difficult things 

Commercial Dealer

where you can just add 20 on if that was being supplied to a commercial dealer who was a big company big retailer who were v80 registered already they’re not going to be interested and worried about the v80 that you’re charging that extra 20 pounds because they can reclaim it and the result you’re winning so in that scenario quite often you’d want to register from day one if nearly all of your customers were v80 registered customers so hopefully you can see how that works in practice and that’s the basics of vat however one of the things as a business that’s worth mentioning is now we have a thing called making tax digital

Making Tax Digital

it’s a scheme from revenue and customs that means that you now need software to be able to submit your vat returns you must keep digital records and they must be transmitted digitally now that doesn’t mean that you need photos of everything it just means that you need to actually store the transaction data so if you imagine a big spreadsheet of names dates amounts and everything that’s really the data that right now is what they want you to store so as a result you can still use a spreadsheet you normally need a bit of software that plugs into that spreadsheet to transmit 

V80 Return

your v80 return so if you are becoming v8 registered that’s something to be wary of and the only other thing I really want to mention of course is that again the keen listener may have noticed that in theory what happens then if I’m selling if I’m not not sold anything but I’m buying loads of stuff does that mean I can get a v80 refund and the answer is yes you can and actually in a lot of circumstances that is quite a normal thing so you can get a v80 refund if you end up buying more stuff and spending more v80 then you’re actually getting in in money so in startup mode or times like in the coronavirus or something like that there might be times 

By Anurag Rathod

Anurag Rathod, as a blogger he used to spread all about app-based business, startup solution, on-demand business tips and ideas and so on.

Leave a Reply

Your email address will not be published. Required fields are marked *