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Hi,
in the event of making standard rated taxable supplies to the general public by business that is not registered for VAT:
the input vat is not recoverable,the output vat will have to be absorbed as expense if there is no scope to increase the price. so there is double tragedy. therefore,we will be looking at sales exclusive of vat(actual sales) and expenses inclusive of vat to compute for profit.
if the same business were to hit 85000 limit and required to register for vat:
the input vat will be recoverable from Her majesties revenue and customs (HMRC),the output vat will have to be absorbed as expense again as sales are to the general public. single tragedy. so we will be looking at sales exclusive of vat and expenses exclusive of vat.
QUESTION: would it be fine with HMRC to continue refund the business if it is exclusively making this types of sale(to general public)? or what if the supplies are zero rated with expenses being standard? to put it simple, my concern is on recoverable input exceeding the output therefore getting refund all the time. could there be cap to this claim.
thanks.Look again at your first statement – if a business is NOT registered for VAT then there is NO standard rated VAT to charge on its sales to its customers!
If a business registers for VAT then if the supplies it makes are standard rated, output VAT must be charged on those sales – if the sales are zero rated then there is no output VAT to charge on the sales. In both cases however the sales made are taxable supplies and therefore input VAT suffered on its purchases and expenses IS recoverable.
If the business makes zero rated sales but has standard rated inputs then this will always create a repayment from HMRC to which there is no cap
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