Difference between Purchases and Expenses

H

hateforms

Guest
This I think is an accounting / tax question. When completing a form 11 do you
1. Enter the Sales excluding VAT
2. Enter purchases excluding VAT
How do I identify the difference between Purchases an Expenses. (I borrowed to by a computer.) How do I enter that?
Very little of my purchases are for resale. Most are just running expenses.
I think I need an accountant but because sales were only approx 7000 euro including VAT - I cant warrant that fee. Any ideas?
 
hateforms said:
1. Enter the Sales excluding VAT
2. Enter purchases excluding VAT
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Yes on both counts.

hateforms said:
How do I identify the difference between Purchases an Expenses.
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Purchases are items purchased for resale. Expenses are other items.

hateforms said:
I think I need an accountant
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Indeed you do. Doing a Form 11 is risky unless you (1) know what you're doing (2) have braced yourself for the fallout if you make errors, such as calculating your tax position incorrectly.

hateforms said:
but because sales were only approx 7000 euro including VAT - I cant warrant that fee. Any ideas?
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Can you afford to overpay your income tax by €500-€600 or more?
Can you afford to pay interest and penalties on any underpayment of tax due to errors on your part?
If so, you should be able to afford some basic accountancy assistance.
If not, you should not be attempting to do a Form 11 yourself without this basic accountancy assistance.

Btw, why on earth are you registered for VAT?
 
your computer will need to be capitalised, if this is your first year then it might be worthwhile that you spend some money this year getting an accountant to prepare you accounts and tax return.

The vat issue is also valid. From a turnover point of view you should not be registered. Have you been filing vat returns?
 
I have filed VAT returns. 7000 sales was for 2006. 10,000 sales for 6 mths of 2007.
Thanks for all your help. sorry about the 'multiple threads on same topic'. By asking questions I have identified that I need an accountant and also to register with revenue online. So thanks again.
 
thoses cases are surely few and far between. Unless you are selling a zero rated product there can't be much sense in it.

What are the advantages?
 
command said:
thoses cases are surely few and far between. Unless you are selling a zero rated product there can't be much sense in it.

What are the advantages?
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As you said, selling a zero rated product and if you have VAT-able costs, then there would be net refunds of VAT.

Also, if all sales were to VAT registered customers, even if sales are standard rated then the input credit on VAT-able costs may make registration worthwhile.

With new 4 monthly and 6 monthly returns, the administration of VAT is being made less onerous for the taxpayer too.

Of course, there is the trade off on income tax deductions. Irrecoverable VAT forms part of ones income tax deduction, if the VAT has been recovered then the income tax deduction is on the net amount. The VAT claim is therefore slightly offset by a lesser income tax deduction.

Each case would really have to be looked at on its merits before deciding to register when below the threshold.
 
Where a business's turnover is very low, such as the above example, the benefits of registering are likely to be minimal.
 
ubiquitous said:
Purchases are items purchased for resale. Expenses are other items.
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Purchases can be equiptment and other items than can be capitalised

ubiquitous said:
Where a business's turnover is very low, such as the above example, the benefits of registering are likely to be minimal.
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If your customers are all vat registered, it can be a very significent benefit
in term of cash flow when you are starting out and turnover is low.
 
hhhhhhhhhh said:
Purchases can be equiptment and other items than can be capitalised
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...not for the purposes of Form 11, which was the original query.

hhhhhhhhhh said:
If your customers are all vat registered, it can be a very significent benefit in term of cash flow when you are starting out and turnover is low.
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For a €10K per annum turnover business...
A benefit? yes - but usually only in the very short-term. Very significant ? No.
 
hhhhhhhhhh said:
The lower the turnover the more significant it would be.
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If someone is sailing that close to the wind financially, you would have to wonder why they are self-employed in the first instance. The VAT system is rarely a dependable source of finance for any business of this size.
 
command said:
thoses cases are surely few and far between. Unless you are selling a zero rated product there can't be much sense in it.

What are the advantages?
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Well, from my own point of view, I am a self-employed Graphic & Web Designer and all my clients are businesses. I charge 21%, they claim 21%, so it's never even discussed or becomes an issue. Where it becomes an advantage to me, is that every expense I have is VAT claimable (eg; broadband, mobile phone, stationery, diesel, computer equipment/software).

So, if i have a month where my expenses are higher than normal, then I don't have to give the VAT man some of that VAT I've charged to my clients. That's an advantage. And even it it's only a few euro, isn't it better in my business than somewhere else. And with VAT3 returns being so easy and uncomplicated why would I not register?

I'm sure each business is different, i.e. those selling direct to the public who would have to pay 21% extra on everything, but like I said, for me, it's a big advantage.

ubiquitous said:
If someone is sailing that close to the wind financially, you would have to wonder why they are self-employed in the first instance. The VAT system is rarely a dependable source of finance for any business of this size.
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I know what you mean, but for me it's never considered a source of finance. More a way of keeping my cost of expenses to a minimum.
 
The worst thing any person could do is look at their vat on sales as a source of funding. Every liquidation I have every worked on the failed company owed the Collector General. Its the most natural thing in the world and veryone does it, but it catches up at some stage.

If your vat on purchases are sufficiently high as to reduce your vat on sales signicicantly then you need to look at your costs.

The only valid reason to be vat registered is to give your clients the impression that you are a bigger business than you are. If you are invoicing them without vat then they will know you are a small operation with very little income. By electing to be vat registered then you go some way to removing this perception.
 
command said:
The only valid reason to be vat registered is to give your clients the impression that you are a bigger business than you are.
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If you are vat registered it reduces you expenses, that is a very valid reason,
no one can argue with that.
 
command said:
The worst thing any person could do is look at their vat on sales as a source of funding.
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I completely agree.

command said:
The only valid reason to be vat registered is to give your clients the impression that you are a bigger business than you are.
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This is a very strange statement. I don't agree with this. As I have outlined in my own example above (I'm sure there are many more businesses like mine), registering for VAT can be an effective way of reducing expenses costs.
 
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