What's the status of expenses paid for when no VAT charged?

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If a sole trader is VAT-registered and is invoiced by another sole trader who is not (yet) charging VAT, what's the position from the point of view of the first sole trader claiming something back from revenue?
In other words, they're putting these services down as an expense for their business.

My impression has been that you could only get something back on a service(or product) paid for if that service had VAT added. Is this correct?
And if not then what is the basis for calculating it?
 
The first guy has nothing to claim back...if it's a business expense he just claims a trading deduction for it in his accounts.

But claiming back VAT doesn't arise.
 
Thanks for this reply and it answers that question.

I don't know what is meant by 'a trading deduction' though... I mean, let's say he didn't mention these services paid for to the accountant (hypothetically) - would he be losing out somehow?
 
Yep.

Say his sales were €1m ex VAT (so €1.23m including VAT).

Say he had no expenses and pays 50% tax.

He'd pay €500k in tax.

Say he incurred business expenditure of €30k (no VAT). His taxable profit would be €970k and his tax bill would be €485k.

By not divulging the invoice, he's down €15k.
 
Makes a lot of sense now. Thanks for explaining it.

I may add more to this thread tomorrow as there's a potential situation in the background which I'm awaiting more info on.
 
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