UK is anybody a self employed electrician not under a scheme?

[Mike Johnson]

The often used phrase "With Respect" means anything but respect, I am not confusing anything, you need a good accountant.

 

[DPG]

The often used phrase "With Respect" means anything but respect, I am not confusing anything, you need a good accountant.

You can claim things back against your taxable income without being VAT registered.

 

[Mike Johnson]

Yes of course you can, but being VAT registered all of those items have another 20% you claim back.

 

[Simon47]

I am not confusing anything, you need a good accountant.

Yes you are confused. Having a good accountant is not helpful if you don't understand what he tells you, or if you ask the wrong question I've had many occasions over the years where someone has "sworn blind" that some fact or other is true - while in fact what they are saying may be true, but not in the context of the discussion because it was the answer to a different question

BTW - I don't use an accountant, I do my own books, and have done for the couple of decades I've been in business. But then the "mechanics of how things work" is something that interests me and so I've been able to keep up with how tax works (as far as it affects me). I can well understand that many people will see things in a different light and have to hand over the shoebox of receipts to an accountant to deal with.

VAT registration (or not) does not affect your ability to offset input & capital costs against income. It does not even affect how much you can offset - if not registered then your input cost is the VAT inclusive price, if you are registered then your input cost is the VAT exclusive price but you'll have reclaimed that VAT anyway - the split between how things are claimed is different, but the net effect is the same.

Examples :
Capital items. You buy a tool for the business which costs £100+VAT.
If VAT registered you reclaim the £20 VAT, then put £100 in the accounts as a capital item to either write down according to general accounting rules, or for most small businesses, claim under Annual Investment Allowance. Assuming AIA, then you fully offset all the £120 you paid out in the one tax year.
If not VAT registered, you put the whole £120 against AIA - again fully offsetting the £120 in the current tax year. If you reach the amount where being VAT inclusive affects being able to set it against AIA then you'll (in most cases) have passed the VAT registration threshold anyway.

Revenue costs. You buy materials for £100+VAT, then do a job where you charge £200 for your labour.
If VAT registered then you reclaim the £20 input VAT, charge the customer £300+VAT (i.e. £360), hand over £60 to the tax man, and put the £100 and £300 in your accounts for P&L purposes. You'll pay tax on £200.
If not VAT registered then you'll charge the customer £320 (the £120 materials cost plus your £200 labour), and you'll put £120 and £320 in your accounts. You'll pay tax on £200.

From the PoV of your customer, if they are VAT registered then it's better if you are VAT registered - the customer (after doing the VAT shuffle) pays £300 vs £320 if you aren't registered.
If the customers are not VAT registered, then it's better if you are not VAT registered - the customer pays £320 vs £360 if you are. And the taxman takes £40 less in VAT.

Of course, in reality you may be VAT registered but competing with non-VAT registered competitors. So you might have to drop your "inc VAT" price to £320 to keep the job.
Your calculation is now that you have input costs of £100, and output value of £266.67 ex VAT. So now you've only made £166.67 on your labour and the tax man takes £33.33 (net, £53.33 on your bill, less the £20 you reclaimed) vs the £20 he'd have taken if you weren't VAT registered.
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Yes of course you can, but being VAT registered all of those items have another 20% you claim back.

But if you aren't VAT registered, you simply claim back the VAT inclusive price. See above, zero difference unless you hit the limit for AIA.

 

[Mike Johnson]

I am not confused in the slightest and incidentally I have been retired longer than you have been doing your books, I also did my own books for a long time, in business for over forty years, but then my turnover became too big for me to handle and had to employ all the usual suspects, In the period I did my books exclusively I had quite a few TAX and VAT inspections and never got it wrong, notwithstanding all the above being VAT registered makes everything you buy 20% cheaper.

 

[Simon47]

Oops, fail. It makes things 16.7% cheaper But you can still claim all of the cost against either input costs or capital without being VAT registered.
But it also makes everything you sell 20% more expensive. So, as previously discussed, if your clients aren't predominantly VAT registered, then your clients pay 20% more - or more likely you have to charge a less less (16.7% in the above example) less on your labour to compensate.
So VAT register or not - depends on your mix of clients (VAT registered or not), and type of work (balance between materials and labour).

But being registered as a Sole Trader you can right down the depreciation of your equipment each year against your TAX, you can also claim a proportion of your housing tax against the room you use as your trading place of business, it really is a win win situation being voluntarily registered, I am always surprised by how many people do not understand the tax rules that we operate under.

Given that this was a direct response to the question of being VAT registered, it was misleading to the point of being "wrong". Not one item you list as a benefit of being registered (by inference from the context, VAT registered) is reliant on being VAT registered.
THAT is what you were being picked up on - and example of a technically accurate statement but "wrong" in the context because it's answering a different question. It had already been said that if you were VAT registered from the outset then you got the benefit of reclaiming the VAT on your set-up costs - but unless you have (and these typically don't apply much, if at all, to many/most "jobbing sparks") a very front loaded cost model, and/or predominantly VAT registered clients, and/or a heavily materials based output value, then it's unlikely to be a benefit in the long (or even medium) term.
Each business will need to make a determination based on it's own situation - but they need to have correct information to make a valid assessment.

 

[David Prosser]

being VAT registered makes everything you buy 20% cheaper.

No it doesn't.

 

[Mark.fardon]

Simon is right . Mike is wrong. And mike you confused the phrases “write down” with “right down” and exposed your taxation knowledge - write there. The only time I have been better off being VAT registered was as a consultant providing labour only service to a corporate company. I charged VAT which made no difference to them but I reclaimed VAT on all fuel, travel, expenses, tools, laptop broadband etc etc. This is what Simon was expressing.

 

[Mike Johnson]

I am devastated that my use of the wrong word has undermined my entire knowledge base, I will go to the armoury and fall on my sword immediately.

 

[boffman]

Came for the advice, stayed for the drama.
Cheers guys

 

[Mark.fardon]

I am devastated that my use of the wrong word has undermined my entire knowledge base, I will go to the armoury and fall on my sword immediately.

if you must old boy. Or you could just get a tax advisor and/or read what has been posted ?

 

[Mike Johnson]

Getting a bit like the school playground on here now, must have the last word, I will let you have that with your next unnecessary post.