VAT Exemption

[techpro]

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My business Tech-Pro Ltd is a private UK limited company that operates several websites, the main one being tech-pro.net. Our income comes entirely from affiliate commissions on software promoted through the sites, plus a few hundred dollars a month of Google AdSense. All of these income sources except one are based in the USA (RegNow, Plimus etc.) and remit commissions without, as far as I can see, even an option to pay VAT to registered companies. My understanding is that such earnings would be declared on a VAT Return as zero rated.

We are not currently VAT Registered, but our income over the last 12 months is now within a whisker of the threshold. I have been looking into this and it appears that it is possible to get an exemption from VAT, even if your income is above the threshold, if the amount of income on which VAT would be chargeable is small and less than you would be able to claim back from expenses if we were registered.

Is my understanding correct? Is there anyone running a business like this with income greater than £66K pa, that has got exemption on these grounds?

[bills2big.com]

You can indeed be exempt if your earnings are outside of the EU, as long as they are the majority earnings.

[hrbs]

We are not currently VAT Registered, but our income over the last 12 months is now within a whisker of the threshold. I have been looking into this and it appears that it is possible to get an exemption from VAT, even if your income is above the threshold, if the amount of income on which VAT would be chargeable is small and less than you would be able to claim back from expenses if we were registered.

Hi

The current threshold for UK VAT registration is £64k of "taxable supplies" in the last 12 months (or the next month only). Income from outside UK/EU is outside the scope of UK/EC VAT and is not taken into account when calculating your taxable supplies for the VAT threshold test.

[However if you are VAT registered they are included in your sales figures shown on the VAT return in box 6 (as are Adwords). ]

You would be exempt from VAT registration if your income is out of scope of UK VAT and/or from UK exempt sources. (I have a number of clients in this situation).

Your "taxable supplies" calculation would be UK commissions/sales + Adwords . From the details supplied it sounds as though UK sourced income is negligible but you do not mention the level of Adwords spend.

Adwords expenditure must be included in the taxable supplies calculation due to the reverse charge rules (for more info see my articles at
VAT for affiliate marketeers - Business and accounting tips from HRBS Accountants and
Adwords And Your VAT Return - Business and accounting tips from HRBS Accountants ) .

Regards

Keith
Fixed Fee Accountants and Tax, VAT, Payroll Specialists providing proactive, professional service to small businesses - HRBSaccountants.com

[techpro]

Thanks for the reply. As the vast majority of our income is from affiliate companies in the US, from what you say they need not be taken into account when calculating our "taxable supplies."

I assumed that the income did count towards the 64K so we would have to apply, but then hope to be exempted because this income would be zero rated.

Just to clarify, do we even need to bother completing a VAT application in the first place, in that case?

We don't currently spend anything on any form of advertising. We have pages that are already #1 or on the first results page for major keywords. When I did try AdWords there was no significant increase in sales.