Q I am thinking about entering the road haulage industry but I am not certain about the application of VAT.
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1 assume that as I anticipate earning over £5000, that I must register. But do I have to charge 10 per cent on top of the agreed rates and pay this to the Customs?
The reason I ask this is because some hauliers have told me they are not charging VAT because it would be the same as a rate increase, but surely the firm you haul for can claim the VAT back?
AIf these hauliers have an annual turnover of more than £5000 then they have no alternative but to register as a taxable person and charge VAT at 10 per cent on all transactions. • If their turnover is less than this they may claim to be exempt and they need not charge VAT on the services they provide, though they must pay it on the items which they buy for their business. The taxable person, though paying VAT on purchases is allowed to claim this back by deducting it from what tax he charges his customers. The difference is paid to HM Customs and Excise as a tax due. The exempt person cannot claim back what he had paid on his purchases.
If your haulier friends should charge VAT and are not doing so then they have not registered as taxable persons with the Customs. This is illegal and carries heavy penalties.
Should it be that they can claim exemption because they do not have a revenue of £5000, a year, then they could be ill advised. The only way that they can recoup what they will have to pay as VAT on their purchases — of vehicles, for instance, which could be a considerable sum — is to raise their rates. It is quite in order to ask to be registered as a taxable person even if the turnover of the organization is small. In this way VAT will have no effect on the costs of the business apart from those charges involved in administering the VAT scheme and the trouble which might be incurred in keeping records.