Receipts, Taxes and VAT

Politics and Receipts have been in the news this week after Labour Shadow Chancellor Ed Balls called for people to make sure they get receipts for small jobs carried out by businesses around the home such as hedge cutting. 

While the person carrying out the work has no legal obligation to provide such receipts to the homeowner they are responsible for declaring this income and paying tax on it and this reminded me of one of the two biggest bug-bearers I have as a business owner and as an employer.

The first one and one I will surely discuss again at some point in the near future is Employers National Insurance where the employer has to find nearly £14.00 in every £100.00 just to employ someone - a tax to employ people on top of the tax the employee will have to pay in their salary. That's not right in my book. 

But this post is about VAT, the 20% tax put on most services and goods that businesses with a turnover of (currently) £81,000 have to charge. While for most business to business transactions this tax usually balances itself out as companies who charge VAT can claim VAT back on most expenses, in our line of work a percentage of our business deals with domestic sales where we have to charge the homeowner an extra 20% on our services but the homeowner can't claim this VAT back. 

So while the guy cutting your hedge may declare his earnings for income tax, if he works for himself the likelihood will be that he is under the VAT threshold of £81,000 while if we were this larger company coming along carrying out a like for like service for this homeowner we would be penalised 20% for employing a larger number of hedge cutters taking us over the VAT threshold and we would likely miss out on this sale, as the guy comes along at least 20% cheaper.

I have seen on multiple occasions tradesmen going into suppliers with customers to make sure the customer buys the materials so the extra costs does not go onto the tradesman turnover to enable them to stay under the VAT threshold.

Overnight governments and the whole country could benefit from extra tax revenues and the playing field would be evened out and companies like mine who have a play in the domestic field, if every single business no matter how big or in this case how small charged VAT for services and goods(which are not currently exempt).

It's a simple rule for me and the biggest tax wish from me - If you provide a service or sell goods, no matter what that is, how big or small your transactions are - then you are a business and you should be charging VAT - it's as simple as that. ​