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We are unpaid tax collectors
26/03/2024

Clients often refer to the VAT added to supplier invoices as if it were a cost to their business regardless of their VAT position.

This is true if you are not registered for VAT, you do not have to add VAT to your sales and you cannot recover any VAT you pay on purchases. Under these circumstances, VAT is a cost.

If you are registered for VAT, cash you collect from your customers will include VAT – if the sales are subject to VAT – and you will pay the VAT collected (less any VAT you pay on purchases) to HMRC. As you are collecting VAT from your customers, paying VAT on purchases to your suppliers and paying the difference to HMRC, there is no overall cost to your business.

Whilst there is no effect on our profitability if we are registered for VAT, if we have to pay over VAT added to our sales before our customers pay our bills then there can be a cashflow issue. Fortunately, HMRC allow traders affected in this way to use a special process called cash accounting for VAT. If you qualify for this method, you will only pay VAT added to your sales when your customers pay you, and conversely, you can only reclaim VAT on purchases when you have paid for them.

Consequently, those of us who are registered for VAT and are required to calculate and make returns to HMRC, are indeed unpaid tax collectors.


Legal

Cameron Baum Hollander is the trading name of Cameron Baum Hollander Limited. Cameron Baum Hollander Limited is a limited liability company.

Company Number: 04631085

Registered Office: 88 Crawford Street, London, W1H 2EJ

ICAEW Number: C001006629

VAT Number: 814 8108 39

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Contact Us

Cameron Baum Hollander
88 Crawford Street
London
W1H 2EJ
partners@cbh.co.uk
020 7724 8824
https://cbh.co.uk/

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