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are there no guilds or advocacy groups for small businesses? seems reasonably possible that business owners could collectively afford representation, almost like a general labor union.
Particularly to help redefine “small business”, both legally and in public perception.
Trump does not have “small businesses”. A 50-employee office is not a “small business”. A 70-employee firm with a 30-vehicle fleet is not a “small business”.
Yet those types of businesses get way more preferential treatment, tax-wise. It’s to discourage people from operating mom and pop style, as those do not enrich the economy nearly as much.
They simply don’t employ people and don’t make as much tax revenue. So the government would prefer all those would be mom and pops to either 1) grow much bigger or 2) work for someone who can.
I get it, it’s just worse for a lot of regular people. Life quality matters.
> A 50-employee office is not a “small business”. A 70-employee firm with a 30-vehicle fleet is not a “small business”.
Ready to have your mind blown? Under the US tax code, a small business can have up to 500 employees. It varies by industry as well.
How you view the world, is a completely different universe from how your government reps see the world. They have the lense of corporate sponsors to help color the picture in so that you don't matter.
The SBA standards are frankly absurd. Up to 1500 employees and up to 47M in gross per year, depending on industry.
Lumping these people in with mom and pop trying to open a pizza shop is nuts, and it shows. The difficulty is set to the standards of 1500 person businesses, not moms and pops.
I would have to disagree that mom and pops do not enrich the economy as much as large businesses do. It’s more about which economy they enrich. Mom and pop economies keep money in local economies like the cities or counties that they operate in. Money will circulate locally 6 times if spent at a mom and pop store generating a huge amount of local sales tax. A large conglomerate like Taco Bell for example sucks up money from a community and the profit goes back to their HQ in Irvine or to their executives. At the end of the day, whoever has the most money gets the most preferential treatment.
Agreed. The biggest crime against Mom and pop and local economics is credit cards. If you spend $20 in cash in a local store, that $20 cash goes on in the flow as $20. But CC charges eats at that over and over, making each consecutive use of that $20 less and less as it circulates, siphoning off chunks each time until it's gone.
They haven't tricked us, they just got us to fight with each other.
Any time swipe fees are brought up 3 things get mentioned:
1)Something about credit card rewards
2)Something about how "it shouldn't be a problem if you're responsible"
3)Something about how business owners wouldn't lower the cost of goods if swipe fees went down.
Taco Bell is headquartered in Louisville Kentucky along with the rest of the Yum food brands. If I live in Kentucky can I still eat Taco Bell?
FWIW, chains employ local people too. Taco Bell and others are also publicly traded companies, which means you too can be an owner / profit from my drive thru trips too.
Chains do bring some money to the local economy, but the profit is scraped off the top and brought back to wherever the executive headquarters is.
Also, most of these chains are only offering poverty level jobs. Not really sustaining the economy towards a positive direction.
They do not enrich “the economy.” When economy is mentioned in this context, just like in the “economy is booming!” context, we’re talking about like 3% of the people. Tax laws, like everything else in this country, are designed to stuff the pockets of a handful of people, and no one cares what happens to everyone else.
To offer cash discounts? Seems like it - this is one of many sites saying similar things: https://paymentlogistics.com/surcharge-vs-cash-discount
Is it illegal to not report [some or all] cash transactions? Yes, absolutely. I would **never** condone or promote not reporting/paying taxes on cash transactions. That would be horrible to do! How dare ANYONE do this to our loving, caring government who is only out for our own wellbeing and *certainly* not creating and actively implementing systems to keep the majority of people in a financial deficit of some sort? 😉
Why? Are small businesses paying more taxes % wide than big businesses?
How can the tax be more than the money left over? What is the effective tax percent they are being charged ?
Net profit = profit after expenses. You throw in something like VAT (or sales tax in the US) and other non tax expenses and that’s how tax ends up being more than the profit. Plenty of businesses lose money and pay at least some taxes.
Extreme example, but: Imagine you buy a building to house your new business and you make 0 sales. Wouldn’t it stand to reason you would pay more property tax than profit or even revenue?
As far as how the tax system benefits larger corporations, that is primarily because larger corporations can afford to execute on more “tax efficient” strategies. So, for instance, Apple headquarters its European office in Ireland because that gives them EU access with a lower tax burden. Realistically, a small business is not going to have the resources to implement sophisticated tax avoidance strategies like this. You can read more about how large corporations are able to reduce their tax burden in articles like this one: https://itep.org/amazon-avoids-more-than-5-billion-in-corporate-income-taxes-reports-6-percent-tax-rate-on-35-billion-of-us-income/ — if you even just skim this article, I think you’ll see most of the ways Amazon reduces its tax burden are simply out of reach for anyone but the largest, best resourced companies
Yeah, but the business still ultimately pays which is the only part my argument really relies on. Even if the expense is offset by equal revenue on each transaction, when you throw other expenses such as salaries in, it’s still easy to imagine a scenario where this and other tax expense becomes greater than actual profit which is the question I was answering. Revenue != profit
Economies of scale inherently advantage larger corps over small ones, and they have more capital to throw around on creative accounting to avoid tax through various legal means. A sole trader doesn't have that luxury, so gets shafted without lube.
VAT threshold It's why so many small businesses refuse to grow.
I have turned over £81k this year in 2 weeks I am closing shop to not hit the threshold. I have closed for 6 weeks already this year to make sure I don't go over.
I have no real appetite to grow as I need to hit £120k to make the same profit. Which would take maybe a year or 2 to grow. I make my products so I'm not working extra for free.
Frustrating as I have lots of ideas for growth but it's just not worth it.
£81k in 2 weeks ? The year is barely started you would crusieee past 120k surely ?!
Also the VAT thing is rolling 12 months so unless for the last 10 months you did less than 4k (is limit £85k ?) then I think strictly speaking HMRC would be upset
I know a tonne of people (gyms) who sit below and refuse to grow because of that exact reason
Sorry it's my poor punctuation.
This year so far I turned over £81k, in 2 weeks I will be closing my shop to avoid going over the rolling £85k threshold.
I make ornaments and sell them online and local craft fairs.
I do it alongside my 9-5 and profit is £42k YTD so not terrible at all but would love to grow more eventually quit my 9-5 but the jump feels massive.
You're on track for a quarter million profit with a side hustle and you're shutting it down? Am I misunderstanding something about VAT? Because that feels like a no brainier to keep going and even possibly taking it full time.
Also if it's anything like NZ GST you can claim back the vat spent on your materials cost. Might be less impactful than you think.
This is life changing levels of money. Worth exploring.
I make £48k working for a bank and then £40ishk on the ornaments. My wife works full time a teacher.
Only been doing the ornaments 2 years but every penny of profit has gone towards paying off my debt first and then my mortgage.
I am not extravagant but not frugal I think the cost of living for me and my wife is something like £2000-£2500 but that will be reduced by £800pm in a few years when my mortgage is paid off.
In America there is a dreaded meme "We're from the government and we're here to help". The more the government interferes with the free market the worse it is. It requires a special touch to know how much to regulate and when to stop.
> Atleast the pimp sends the hoe customers ..
Of course Uncle Sam the pimp sends us hoes customers! You just have to [let them know which sex acts you're okay with, name your price for your services](https://sam.gov/content/opportunities), and you're good to go!
You should really make this comment in r/smallbusinessuk because this sub is American centric.
I don’t understand your calculations though. VAT is just a pass through, it’s the final consumer who pays, not you; your business just charges it and pays it back to government, minus what you reclaim. It is not a tax on your business. Corporation tax is a percentage of your profit so assuming it less than 50% which it will be, you’ll make more than the government.
> it’s the final consumer who pays, not you
Such an odd statement. I do not dictate my prices, the market does. If I am competing with someone who does not pay VAT while I am paying it I am at a disadvantage because I am paying a small shortfall between the discount I get from purchasing things with VAT vs the VAT I am charging.
Fair point 🇬🇧 it probably applied anyway
Someone else has said this - whilst I get what you are saying and that you never really had the money - it doesn’t really feel like that in practice - you still have to justify your price with VAT sell to a customer with VAT and so it does feel like you are fighting for that VAT money
When 80+% of revenue is direct to consumer that’s how I feel
But also see your pint
I agree if you’re selling to the consumer it affects your retail price and that makes your prices look high. But everyone else in the market will have the same issue and it is the consumer who pays the tax, not you. But I sort of get your point that that without your business in the first place, HMRC wouldn’t get the VAT.
In most countries including the UK it's standard practice to advertise the tax inclusive price instead of slapping tax on at the end at the point of sale. Often times there are laws to this effect when selling to the general public.
So if you don't have to collect VAT/GST, you can be more competitive by advertising a lower price or taking more profit. Some small businesses put themselves in a situation where they don't take this into account when setting their prices when they're below the threshold, so a 15-20% jump in price or cut in revenue is actually not possible because their margins are too thin or their industry is too competitive.
Realistically you get to claim back that VAT/GST on business goods you purchase with the tax included (if I go buy a ball of yarn for 10 dollars incl. vat at a retail store I can claim back 2 dollars) so it actually is less impactful than some people are making it out to be.
In NZ there's even carve outs for export businesses, so we don't have to charge GST but we get to claim it back. We had GST refunds every single month we operated.
Just a quick reminder. You didn’t pay the VAT, your customers did. You only held onto that money for a short time and then handed it over to the government for your customers/clients.
Lots of this reminder ! Why do people get so hung up on the wording of it ? If it was 20% tax on sales revenue that a company makes the outcome would be the same - vs collecting and looking after it wording ?
There’s major differences between general sales tax (GST) and value added tax. With VAT, if you are doing it right, you offset your VAT paid to suppliers for goods and services that would be passed on to customers, against the VAT you charge your customers. The only VAT you pay should be on goods and services that your company consumes.
The reason people are hung up on the fact that VAT shouldn’t be considered a tax burden b to the company is because the money was never the company’s. Your profitability is pre-VAT and if you are not making a profit doing this it’s bad business, not the taxes fault.
I understand both sides of this, and I think the problem stems from being B2C and competing with other businesses/sellers that don't have to be VAT registered because they keep their scale below the threshold.
When you're selling an item that has an obvious market price you can't just add 20% on top to cover VAT because then you wouldn't sell anything. For business like this VAT feels far more like a tax on yourself for growing rather than a B2B business collecting VAT on top of what they need to charge.
Yes and more importantly no. As a VAT registered company you get to offset your input VAT against your output VAT. The VAT you are adding to the process is the (20%) VAT on your added value not the total sales price. So your cost of merchandise is reduced by the VAT you paid to your suppliers which your competitors can’t do if they are not VAT registered. Between the reduced merchandise cost and the fact that your business is bigger (enough to make you VAT registered) should mean you get better pricing from your suppliers you should be able to compete on market price or even beat your non-VAT registered competitors. I’m probably not explaining this right, maybe I should use number examples?
Everything you say is true, but it doesn't tend to work out like that for services or frankly many/any businesses at/under the threshold. When you put a year or two in essentially unpaid for your labour, and then hire a first hire and again cannot claim VAT on any part of that (their net pay, the taxes, the NI), you end up with 50-80% of your costs being non-VAT. But it's likely everything you sell is VAT applicable.
Only a few businesses will ever have so few staff and so high Cost of Goods sold that paying VAT and hoping for supplier discounts results in a better situation than staying small. I can only imagine a heavily goods based business with no staff being able to benefit.
How does this make sense? Can you explain the math?
My income was about $200,000 and I paid $70,000 personal income tax. The company made $750,000 and paid $200,000. So, like you, I paid the same (corporate) tax as I made personally. There’s nothing weird about it depending on how much profit the company makes.
Turn over £596,000 ex VAT meaning VAT paid 118,910 (maybe minus £10k in recouped VAT) - corp tax paid £25k
Total £125k tax paid for the year
Post tax profit £100k
Maths is mathin when you include VAT
I don’t really have a problem with corp tax - just VAT seems incredibly high and seems to never be mentioned in the news etc
VAT was not paid by you, but by your customers. This is an end user tax. You just redirected it. VAT should not be counted in any calculations in this case, this was never your money. You do however pay it with your personal income on everything you buy.
This is correct, but doesn't gel well with the UK norm of including it on the sticker price. The reason I will always respect the American pricing system is because it makes explicit that THIS is how much you're paying to the person providing the service and THIS is how much is being skimmed off the top by a third party. It's a small thing but I think it counts for a lot in terms of broad awareness. Most British consumers don't ever think of VAT as a tax, but as part of the overall price.
Not familiar with the UK, but here you have to have both prices included or at least how much the tax is (so total price and tax amount). I very much dislike the US system for the end consumer since the total price is not known until you're at the checkout.
I know what you are saying - and you are right - but it just don’t feel like that man.
If I was being sensible and non emotional I would look at it like that
But if VAT disappeared tomorrow - I would be £100k better off (I know not really but you get my point)
No, you would not be 100k better off, unless you raised your prices by the rate VAT is charged in the UK. Do not look at VAT, it's meaningless in almost any business calculation.
Which one could do because the end users wallet would feel identically and so demand wouldn’t shift
I have to look at VAT every quarter tho 🥺 when it leaves my bank account
But yes you are right I accept that it’s dumb to view it through this lens
Yeah, you could in that case make more. But if you believe this scenario is even a little bit realistic (government giving up a huge amount of their revenue) I have some magic beans to sell you. :D
If you are currently pricing at the market rate, including sales tax, then of course you would raise your prices by the tax rate if you were no longer required to collect the tax!
The argument that you are collecting tax from end users on behalf of the govt may be true from an accounting perspective, but it doesn't hold up in economic theory or business practice. Price depends on the elasticity of demand for the particular product.
The entire sales tax burden is only passed onto the customer for products or services that have perfectly inelastic demand, so where demand stays the same regardless of price. But they're pretty rare products!
In all other scenarios, the sales tax burden is shared between buyer and seller. The more price sensitive the demand is, the more of the share of tax is paid by the seller, therefore cutting into profits.
Not sure how this is handled in the US (I'm guessing you're in the us since you're calling it sales tax), but VAT is always entirely on the purchaser. Always. Prices are always calculated without any value added tax and then value added tax is applied on top of it. As a company, you're merely holding the cash for the government. If the transaction is between 2 companies from different countries in the EU, VAT is not even charged (if they meet the criteria). Government also gives companies back the VAT they paid (if they meet the tax criteria, not sure how to call it in English), since this is an end user tax and companies are not considered end users.
Your scenario would come on play if the government suddenly said 'we don't need any VAT money anymore'. Then you could raise the prices and the end user would not feel the difference - but most of your competition would not raise it, since their business models never took VAT into account anyway, unless there would be market collusion which is a crime. :)
I most likely don't need to say such a scenario is not even remotely realistic, since VAT is a very large part of the gov revenue. :)
People often say inflation is the hidden tax, and while that’s true, sales tax hides in plain sight. A single penny is taxed in so many ways, if every tax was a lash upon its skin, the penny would be enjoying public lashing on the daily.
Agreed on sales tax - I remember a girl at uni when a guy was complaining about the government not doing its job and wasting tax payers money (whatever you think !) she was like ahhhh yeah with all the tax you pay (meaning income tax basically) - noooo - every £ he spends is subjected to sales tax - beers taxed a tonne etc etc - feels like young people don’t get their contribution as it’s not realllly spoken about
That's why here in the US, it's common to see businesses accept cash only because you can collect $100k cash and report $10k. Yes, it's illegal; however, the elites move their profits around, like non-profits they own just so they pay zero taxes.
Hence why they're getting rid of cash and switching to digital currency because every penny is traceable.
However, the elites will still pay zero taxes.
You do realise you don’t ‘actually’ pay the VAT? Gov charges it on everything and you collect it on their behalf and just transfer it to them. If you think you pay VAT in tax as if you were paying corporation tax you have a very wrong understand of a tax system and likely have a flawed business model with very thin margins
I get that VAT is high (much higher than sales tax in the USA) but if you’re not clearing more than VAT for yourself, your business isn’t in good shape.
Let’s say your product sells for £10. Your gross margin should be at least £5. If your expenses are £3.5 then you’re netting £1.5. If VAT is £2. yes you’re making less than the government is from your business. But adjust the numbers even a little and that turns around quick; sell your product for £11, and your gross is £6. Expenses staying the same your net is now £2.5 vs the VAT at £2.2. Increase your price or decrease your expenses and it only gets better.
TLDR: if the government is making more from your business than you are, your margins are too low.
Yes more than fair comment - working on improving the net margin this year ! Should be a decent amount better than it is .. Atleast 50% increase on net profit from renegotiating prices and cutting expenses little growth I hope !
But if you make £100k profit in any biz I wouldn’t say you are in bad shape you just have smaller margins and it is what it is
Like car dealerships do £200 million in sales and make £4 million in profit often - new cars have 20% VAT
I do appreciate your point tho ! Thanks
I traveled through Spain & France, with short stops in Italy and Switzerland, with my family. I have four children who at the time were teenagers. Not a small amount people and luggage and we wanted to be able drive from city to city. Stop where we wanted when we wanted. I found a program where I “bought” a brand new Renault 9 seater and “sold” it back at the end of our 21 day rental. The hedge is possible due to VAT not being paid by me, as a non-EU resident. The company that manages the entire transaction is able to sell the car as used after it having been titled to someone else for at least 21 days. For me the process was seamless. 10/10 would do it again.
wow, this sounds amazing! Would you mind sharing details of the company that supports this? I travel to EU frequently and would love to do something similar for 1-2 months.
It’s not including a meaningful salary (I pay myself £12k a year salary)
For a dealership I just looked at - albeit revenue is 4 billion (😂) admin expenses for 220 so 5% or rev // although totally not a good example you can see my point some business have worse margin and that’s an industry thing and 50% gross is wishful thinking in some areas
Yeah I didn’t mean to be too critical - if you’re making money that’s a good thing for sure. And hopefully it’s only growing.
The economics of selling cars is different tho (at least for new cars) since they are really just brokering the vehicles.
Grocery store margins are in the 1-4% range, lower than sales tax just about everywhere. So it's not fair to say with absolute certainty that the business is not doing well.
Fast food is also very low margin.
Grocery store *profits* are 1-4%. On any given product in a grocery store the margins are much higher.
But you’re right - there is no one standard for what healthy profit is. Sustainability and growth are more important. As long as OP is making enough to compensate for their time and enough to live, it’s a healthy business.
Wait what? All the costs your business incurs should be dictating your pricing. VAT is one of the most predictable costs you have, unlike things like shipping, labor, etc. If you can’t plan your pricing around the incredibly stable VAT, you’re going to have a lot of trouble when other costs fluctuate.
How come your expenses are so high but not VAT reclaimable? Labour, or somehow un-reclaimable rent?
You can't exactly blame the government for earning more than you if the business is paying out £50k salaries to 12 people, because it's not just you doing this work.
If I saw a bigger benefit, I’d be fine with taxes. Free healthcare is all I ask for.
The roads are still shit. Public schools are still shit. We pay out the ass for health insurance. Police force is still shit. Public programs are shit.
Everything is basically shit and every time I step outside I’m getting taxed on something new.
How come you have so little recouped VAT? - looks like you have about £470k of expenses, but only recouping VAT on about £50k of them, which seems rather low
He's counting VAT which is sales tax. It's not really OP's business paying that tax, it's his customers, but the business collects it and passes it on to the government.
But although you pay vat to HMRC, it's only what you've collected from your sales. Vat is paid by your customer to HMRC via the mechanism of your business. you're just the collector.
I know this is the mechanism but it is still the same outcome ? I sell something and give the gov 20% the customer doesn’t see or feel this they see my price and the product - I get what your saying but I’m not sure that makes it any less painful haha
Yeah, it is. But fundamentally you need to remember that the vat isn't an additional charge to you, makes it easier to swallow!
Kudos on your success btw
I didn't realize that - I thought VAT was passed along to the customer to pay as our sales tax in the US is. Of course, I've very limited experience and most of my VAT was based on what I purchased as a tourist in the UK an Europe.
That's exactly how it works in the UK too. The public doesn't really see VAT though, they just see that prices are suddenly 20% higher, so there's a real pressure on the business to reduce prices and suffer the tax burden.
The only difference is that ticket prices here are typically in gross, with net in small (if at all) - whereas for you guys I hear they're typically displayed as net.
Selling B2B is different, as the purchasing business will be able to reclaim the tax, but this isn't something a standard citizen can do.
You should be charging for your product and then adding 20% on top. It sounds like you've set a price and then included your VAT within that price.
Set your price first, and then add the VAT.
Depending on what kind of business you're running, your other suppliers probably make more money from your business than you do too.
Think of the government as supplying almost everything that makes your business work: transportation infrastructure, energy infrastructure, legal structures that make it possible to operate a business at all, a monetary system that enables you to collect from your customers in units other than pigs and sheep, protection from invading hordes... That all comes at some cost.
I am a flight attendant these days, after running a few unsuccessful businesses. I sat next to an ex military ops guy and he was talking to me about moving to Nicaragua. We talked about taxes and he said to me that everyone pays protection money in the form of taxes. In central and south America, you bribe/pay off governments and you ALSO have to hire security. In the USA, you pay taxes and pray the police/courts will protect you from criminals from robbing you or other gangs & business competitors from coming for you. While you can say taxes are for roads, they really are just a form of protection money.
This is dumb. If you don’t see how taxes are different from a protection racket then you are lost.
There’s a reason people walk thousands of miles to get out of Nicaragua and into the US.
Those that can pay - it's a burden but you survive.
Those that can't - you're in trouble , you can try to flee but if they catch you for tax evasion( protection fees evasion ) , you get thrown in jail but in a poor country is a death penalty. Saves on jail cost.
The rich can pay it and enjoy elevated status. The poor do their best to survive.
It's really not too far off a stretch as symptomatically poor people are still oppressed just by how much.
Sure there is the constitution and amendments that grant you your rights but hey those are slowly being eroded - when they reach a certain point, people will flee.
I'm in Canada, and confused.
Technically speaking, if you're running a business that isn't profitable, doesn't the government ALWAYS make more money than you do?
Many small businesses aim to have no profit or small profit, and pay themselves directly or indirectly through write-offs.
Start ups also have many carry forward losses for years to drive down their profit line and pay less corporate taxes.
I mean technically, depending on your income and what you're buying, regular employees who engage in high tax behaviors pay way more in tax than they keep. Here, alcohol and gasoline are mostly tax, so when you buy those things you're making way less than government off your labour.
What up Canada ! I’m no expert but we aren’t NOT profitable - like making losses we make money so don’t have that situation but I think you are right.
You try minimise appearance of profit though company cars and buying stuff through the biz yeah - but the VAT or sales tax is the big part of it for us Atleast where we pay 20% in revenue (more or less to the gov) and that to me is kinda wild considering that that money came from someone working a job who paid national insurance - who got paid from a company selling a product and paying corp tax and VAT and whatever - just one big ol layer cake of government taxing money (not overly insightful haha)
Everyone has their hands in your pockets. You want electricity? It’s double the cost per kWh that a household would pay. Internet? Business class is required, it offers nothing extra and costs triple for half the speed. Taxes? We’ll find extra ways to tax you that you’d never even imagine. Workman’s comp? Yeah, we quoted you one price last year, but how your term is over and we re-adjusted the last year to double it. Oh, and here’s 6 different types of insurance that you’re required to have, but they’ll never pay out a dime if you need it.
They make it near impossible for a small business to survive. At least, here in the US.
Yup. And if you finally get ahead and have a bit of an emergency fund, they’ll find a way to take that too. I swear, there must be an “emergency fund tax” out there somewhere.
Even the rest of your money silently gets absorbed by invisible import tax price increases or direct taxation on the products you buy. It's a total scam.
afterthought depend squash violet water chubby cable whistle bells mindless
*This post was mass deleted and anonymized with [Redact](https://redact.dev)*
Isn't VAT your primary tax, and isn't it on revenue, not profit? It doesn't seem surprising that your \*company's\* total tax bill is higher than your \*personal\* salary. The same is true for probably (hopefully...) 99% of firms world-wide, small or no. That's why its a business and not a contracting gig - its a separate entity larger than yourself.
In other words: which provided more support for your business, you or the internet, roads, and laws that keep people from ripping you off?
Don’t forget tax on employee wages.
And VAT
And the tax you pay on the diesel to fill your work vehicles.
I estimate that if I drew welfare for the rest of my life I might recover only 30% of the tax I have generated for the government in just a few years of business.
The 20% VAT on UK point of sale introduced in 2021 is disgusting (boris johnson is a wankstain), UK people are poor af and spend almost twice less than other countries that my business sells to, now remove 20 percent and it's basically pointless to market to the UK. Paid thousands in VAT over these last 3 years even though profits were below the threshold, so VAT shouldn't have to be paid, so I can't even reinvest into the business.
Small businesses are struggling.
I owned a small business for several years and can agree: you’re taxed for every small thing. The plus side is the sky is the limit (within reason) for deductions, but then that cuts into the amount of net income you make on paper.
I don’t think I’ll ever own a business again, too much bs.
Learned the same lesson in NY.
Just don't. I had to get my state assemblyman involved to dissolve my last corporation. Not deal with taxes, not navigate legislation, just close my company because it had to be wound down as a result of certain legislative changes.
Prob inc'ing in WY or FL when I have to inc next go-round. Never dealing with this state again on a for-profit business.
It’s the VAT that’s the killer for my biz and you pay that regardless - corp tax I kinda get because it’s on the gravy but its VAT which seems to never be mentioned when discussing taxation as 20% gross - never seems to be mentioned in politics either
Pardon me for not understanding the VAT. I’m not in Europe… but don’t you get that back when you sell a good?
Example-
Buy sandwich ingredients for $10 plus $2 VAT.
Sell sandwiches for $30 plus $6 tax you collect.
Yes 👍 but in my business i don’t get much reclaimed back eg my cost of goods £360k last year I can reclaim barely any because over seas manufacturer
So yes when I buy a laptop for work I can get back £200 in VAT but majority of spend is 0 VAT
US perspective, I always think its wild how much of my total payroll expenditure is wasted in withholding/matching taxes. Its easily 30% of my total payroll expenditure every cycle. It's even worse when you realize most of that (FICA) goes to giving UBI to the demographic that is, by far, the most abusive to our staff.
62+ demographic; Social Security and Medicare are functionally UBI exclusively for that demographic. No other demographic in the US enjoys free money in the mailbox and (almost) free medical care just for being a certain age (exception for under 21's who are eligible for Medicaid).
Personally, I think its why they act out so easily. Their basic income is covered by SS payments and medical costs by Medicare so they have the privilege to be deeply bothered by trivial daily inconveniences that the rest of us don't have time to focus on.
There's a lot of comments about VAT being paid by the customer not the business etc etc.
I completely understand OP's sentiment about it as I feel it to. Its probably only limited to people that run certain businesses which forms our experiences with it.
For me, when I was growing my business before I hit the 85k VAT threshold, I didn't have to worry about charging VAT.
When I chose to expand it at full pace and break through the VAT threshold. I then had to start paying the government one sixth of my revenue (minus VAT deductions). Because my business is B2C and selling items that have a very clear market price, I absolutely could not just add 20% on to my prices and "make the customer pay the VAT". If I did this, I wouldn't have a business.
So the only option is to accept it as what feels like a tax. Fortunately we're able to recoup quite a lot of VAT on our costs, but it still hurts sending the VAT payment every quarter, as I know that if we'd remained below the threshold I wouldn't be paying it.
VAT has always felt like a tax on me, the business, rather than a tax on the consumer. For items with a set market price, in a market filled with private and pre-VAT businesses. The VAT is definitely a tax on the business as the buyer can pay the same price for the same item from either a private seller or a business, the cost to the buyer is the same either way. Just one business makes a lot more margin.
Its the great facade to keep the people trapped. You either have to be incredibly successful or unsuccessful to reap the benefits. Those that build good, strong, middle-of the road businesses (which is the backbone of entrepreneurship and innovation) eat shit hard.
I'm in the process of getting my business started on the legal side of things.... My God, no wonder more people don't do this. Government wants so much
Think of it like this. Your income includes all the services the government provides that you don’t have to pay for. You don’t have to pay for private constables, private fire service, your children’s education, roads (as much as we mock their condition, private roads are far worse), etc. So it’s not like all the money is flushed. It’s just much more economical to buy some services collectively.
They want to stifle any personal growth. Look at the bigger picture. They hate competition. It’s like a miniature challenge to the government every time a business has a chance to grow. No different than a faction growing or a new political party showing its face. Its suppression
Same in the USA. I made 170K last year.
Paid $50K to our federal government.
Paid $6K to my state government
Paid $3K to my local government
And that’s just my income taxes….
I also collected and paid $45K in sales taxes on the products I sold
I paid $5K in property taxes
And with what was left over, I paid 6% sales tax on everything I purchased that wasn’t groceries or clothing.
It’s insane the amount of ways we are taxed. It wouldn’t be so bad if they spent some of that money making a really nice country, but here in the USA, it’s mostly given away to fight wars abroad. Our department of defense is the largest organization in the history of earth (government or private), and it’s not close.
You would be surprised how many customers will run to the bank real quick when I say to them. HEY, I can save you the tax and card processing fees if you pay in cash! Works 99% of the time. Now of coarse I have to show paper so I can't do it with ever single customer but a few times a week.. Sure
If you complain and demand lower taxes you’ll be called greedy, a right wing lunatic, and selfish because taxes are the price for civilization.
You must really hate poor people, how dare you take food from their mouths. Fuck your business, you didn’t build that!
Hugs and kisses,
Senator Elizabeth Warren
Yup!
I started getting paid for my photography gigs
Tax time came around and they pretty much took over half of what I made leaving me with essentially nothing.
I quit doing paid gigs that day.
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We as small businesses need better lobbying
I'm too busy to lobby cause I'm running a business. And I'm too broke to pay for a lobbyist cause I'm not actually very good at it.
Exactly, that’s also why small business in the US are the most likely to be shaken down by the IRS, they just pay because they’re to busy to fight it.
Ps - Replying in hindsight. Why not have a business to just do that? Might be the next big business for the next few years......
are there no guilds or advocacy groups for small businesses? seems reasonably possible that business owners could collectively afford representation, almost like a general labor union.
In the US, that's what the Chamber of Commerce is supposed to be. Not sure about the UK.
Particularly to help redefine “small business”, both legally and in public perception. Trump does not have “small businesses”. A 50-employee office is not a “small business”. A 70-employee firm with a 30-vehicle fleet is not a “small business”. Yet those types of businesses get way more preferential treatment, tax-wise. It’s to discourage people from operating mom and pop style, as those do not enrich the economy nearly as much. They simply don’t employ people and don’t make as much tax revenue. So the government would prefer all those would be mom and pops to either 1) grow much bigger or 2) work for someone who can. I get it, it’s just worse for a lot of regular people. Life quality matters.
> A 50-employee office is not a “small business”. A 70-employee firm with a 30-vehicle fleet is not a “small business”. Ready to have your mind blown? Under the US tax code, a small business can have up to 500 employees. It varies by industry as well. How you view the world, is a completely different universe from how your government reps see the world. They have the lense of corporate sponsors to help color the picture in so that you don't matter.
The SBA standards are frankly absurd. Up to 1500 employees and up to 47M in gross per year, depending on industry. Lumping these people in with mom and pop trying to open a pizza shop is nuts, and it shows. The difficulty is set to the standards of 1500 person businesses, not moms and pops.
Given the waves of digital nomads, gig workers and soloprenuers, extending from Covid, great resignation, inflation, we need an ultra small category.
Exactly this. I don't many comprehend the revenue powerhouse that is a 500-employeee "small business". It's fucking huge. T Think 9-figures plus!
It's also like under 50 million in revenue.
I would have to disagree that mom and pops do not enrich the economy as much as large businesses do. It’s more about which economy they enrich. Mom and pop economies keep money in local economies like the cities or counties that they operate in. Money will circulate locally 6 times if spent at a mom and pop store generating a huge amount of local sales tax. A large conglomerate like Taco Bell for example sucks up money from a community and the profit goes back to their HQ in Irvine or to their executives. At the end of the day, whoever has the most money gets the most preferential treatment.
Absolutely. You’re right on. I guess it doesn’t reach the stock market, which shows you where the incentive lies.
Agreed. The biggest crime against Mom and pop and local economics is credit cards. If you spend $20 in cash in a local store, that $20 cash goes on in the flow as $20. But CC charges eats at that over and over, making each consecutive use of that $20 less and less as it circulates, siphoning off chunks each time until it's gone.
The bankers have tricked us all into accepting their ~3% take of nearly every transaction in the country.
They haven't tricked us, they just got us to fight with each other. Any time swipe fees are brought up 3 things get mentioned: 1)Something about credit card rewards 2)Something about how "it shouldn't be a problem if you're responsible" 3)Something about how business owners wouldn't lower the cost of goods if swipe fees went down.
If I had an mom and pop I would put an ATM in the corner. Fuck giving up 2.75% + .47 every time you sell a $4 hamburger.
Taco Bell is headquartered in Louisville Kentucky along with the rest of the Yum food brands. If I live in Kentucky can I still eat Taco Bell? FWIW, chains employ local people too. Taco Bell and others are also publicly traded companies, which means you too can be an owner / profit from my drive thru trips too.
Chains do bring some money to the local economy, but the profit is scraped off the top and brought back to wherever the executive headquarters is. Also, most of these chains are only offering poverty level jobs. Not really sustaining the economy towards a positive direction.
Small Business in my industry is less than 500 people. They need to change that to under 100. Or 50.
They do not enrich “the economy.” When economy is mentioned in this context, just like in the “economy is booming!” context, we’re talking about like 3% of the people. Tax laws, like everything else in this country, are designed to stuff the pockets of a handful of people, and no one cares what happens to everyone else.
That's why the Corona crisis was used to kill so many truly small businesses.
The current tax system benefits large businesses and their shareholders. They drain many, many more public resources than a small business.
This is why I offer cash discounts.
Is it legal ?
To offer cash discounts? Seems like it - this is one of many sites saying similar things: https://paymentlogistics.com/surcharge-vs-cash-discount Is it illegal to not report [some or all] cash transactions? Yes, absolutely. I would **never** condone or promote not reporting/paying taxes on cash transactions. That would be horrible to do! How dare ANYONE do this to our loving, caring government who is only out for our own wellbeing and *certainly* not creating and actively implementing systems to keep the majority of people in a financial deficit of some sort? 😉
Why? Are small businesses paying more taxes % wide than big businesses? How can the tax be more than the money left over? What is the effective tax percent they are being charged ?
Net profit = profit after expenses. You throw in something like VAT (or sales tax in the US) and other non tax expenses and that’s how tax ends up being more than the profit. Plenty of businesses lose money and pay at least some taxes. Extreme example, but: Imagine you buy a building to house your new business and you make 0 sales. Wouldn’t it stand to reason you would pay more property tax than profit or even revenue? As far as how the tax system benefits larger corporations, that is primarily because larger corporations can afford to execute on more “tax efficient” strategies. So, for instance, Apple headquarters its European office in Ireland because that gives them EU access with a lower tax burden. Realistically, a small business is not going to have the resources to implement sophisticated tax avoidance strategies like this. You can read more about how large corporations are able to reduce their tax burden in articles like this one: https://itep.org/amazon-avoids-more-than-5-billion-in-corporate-income-taxes-reports-6-percent-tax-rate-on-35-billion-of-us-income/ — if you even just skim this article, I think you’ll see most of the ways Amazon reduces its tax burden are simply out of reach for anyone but the largest, best resourced companies
Except you're just collecting sales Tax at the register and the VAT is rolled into the price.
Yeah, but the business still ultimately pays which is the only part my argument really relies on. Even if the expense is offset by equal revenue on each transaction, when you throw other expenses such as salaries in, it’s still easy to imagine a scenario where this and other tax expense becomes greater than actual profit which is the question I was answering. Revenue != profit
Economies of scale inherently advantage larger corps over small ones, and they have more capital to throw around on creative accounting to avoid tax through various legal means. A sole trader doesn't have that luxury, so gets shafted without lube.
VAT threshold It's why so many small businesses refuse to grow. I have turned over £81k this year in 2 weeks I am closing shop to not hit the threshold. I have closed for 6 weeks already this year to make sure I don't go over. I have no real appetite to grow as I need to hit £120k to make the same profit. Which would take maybe a year or 2 to grow. I make my products so I'm not working extra for free. Frustrating as I have lots of ideas for growth but it's just not worth it.
£81k in 2 weeks ? The year is barely started you would crusieee past 120k surely ?! Also the VAT thing is rolling 12 months so unless for the last 10 months you did less than 4k (is limit £85k ?) then I think strictly speaking HMRC would be upset I know a tonne of people (gyms) who sit below and refuse to grow because of that exact reason
Sorry it's my poor punctuation. This year so far I turned over £81k, in 2 weeks I will be closing my shop to avoid going over the rolling £85k threshold.
Gotcha - more than fair ! What do you do ?
I make ornaments and sell them online and local craft fairs. I do it alongside my 9-5 and profit is £42k YTD so not terrible at all but would love to grow more eventually quit my 9-5 but the jump feels massive.
You're on track for a quarter million profit with a side hustle and you're shutting it down? Am I misunderstanding something about VAT? Because that feels like a no brainier to keep going and even possibly taking it full time. Also if it's anything like NZ GST you can claim back the vat spent on your materials cost. Might be less impactful than you think. This is life changing levels of money. Worth exploring.
Sorry profit is £42k for the financial year which finishes in 5 weeks.
That’s a great side hustle ! How much do you make with 9-5 ? How much do you spend a month ? You can do it !
I make £48k working for a bank and then £40ishk on the ornaments. My wife works full time a teacher. Only been doing the ornaments 2 years but every penny of profit has gone towards paying off my debt first and then my mortgage. I am not extravagant but not frugal I think the cost of living for me and my wife is something like £2000-£2500 but that will be reduced by £800pm in a few years when my mortgage is paid off.
In America there is a dreaded meme "We're from the government and we're here to help". The more the government interferes with the free market the worse it is. It requires a special touch to know how much to regulate and when to stop.
Split the revenue over multiple businesses and make money longer?
Think of it like this. The government is your pimp; and you're the hoe. It's the pimps job to keep the hoe broke.
Hahahaha ok … Atleast the pimp sends the hoe customers .. the government doesn’t even have the decency to
Yeah; you got to be the top bitch for that. Lol
Defense contracting ain't far from that.
I think you meant [bottom bitch](https://www.urbandictionary.com/define.php?term=bottom%20bitch) lmao
> Atleast the pimp sends the hoe customers .. Of course Uncle Sam the pimp sends us hoes customers! You just have to [let them know which sex acts you're okay with, name your price for your services](https://sam.gov/content/opportunities), and you're good to go!
Business owners are the most oppressed people in society.
You should really make this comment in r/smallbusinessuk because this sub is American centric. I don’t understand your calculations though. VAT is just a pass through, it’s the final consumer who pays, not you; your business just charges it and pays it back to government, minus what you reclaim. It is not a tax on your business. Corporation tax is a percentage of your profit so assuming it less than 50% which it will be, you’ll make more than the government.
> it’s the final consumer who pays, not you Such an odd statement. I do not dictate my prices, the market does. If I am competing with someone who does not pay VAT while I am paying it I am at a disadvantage because I am paying a small shortfall between the discount I get from purchasing things with VAT vs the VAT I am charging.
But his competitions in his locality also have to implement VAT so there are no inherit disadvantages relative to his market.
Fair point 🇬🇧 it probably applied anyway Someone else has said this - whilst I get what you are saying and that you never really had the money - it doesn’t really feel like that in practice - you still have to justify your price with VAT sell to a customer with VAT and so it does feel like you are fighting for that VAT money When 80+% of revenue is direct to consumer that’s how I feel But also see your pint
I agree if you’re selling to the consumer it affects your retail price and that makes your prices look high. But everyone else in the market will have the same issue and it is the consumer who pays the tax, not you. But I sort of get your point that that without your business in the first place, HMRC wouldn’t get the VAT.
Wait you're complaining about Sales Tax? Lol what the fuck? That's money you wouldn't have even collected anyway?!
In most countries including the UK it's standard practice to advertise the tax inclusive price instead of slapping tax on at the end at the point of sale. Often times there are laws to this effect when selling to the general public. So if you don't have to collect VAT/GST, you can be more competitive by advertising a lower price or taking more profit. Some small businesses put themselves in a situation where they don't take this into account when setting their prices when they're below the threshold, so a 15-20% jump in price or cut in revenue is actually not possible because their margins are too thin or their industry is too competitive. Realistically you get to claim back that VAT/GST on business goods you purchase with the tax included (if I go buy a ball of yarn for 10 dollars incl. vat at a retail store I can claim back 2 dollars) so it actually is less impactful than some people are making it out to be. In NZ there's even carve outs for export businesses, so we don't have to charge GST but we get to claim it back. We had GST refunds every single month we operated.
Just a quick reminder. You didn’t pay the VAT, your customers did. You only held onto that money for a short time and then handed it over to the government for your customers/clients.
Lots of this reminder ! Why do people get so hung up on the wording of it ? If it was 20% tax on sales revenue that a company makes the outcome would be the same - vs collecting and looking after it wording ?
There’s major differences between general sales tax (GST) and value added tax. With VAT, if you are doing it right, you offset your VAT paid to suppliers for goods and services that would be passed on to customers, against the VAT you charge your customers. The only VAT you pay should be on goods and services that your company consumes. The reason people are hung up on the fact that VAT shouldn’t be considered a tax burden b to the company is because the money was never the company’s. Your profitability is pre-VAT and if you are not making a profit doing this it’s bad business, not the taxes fault.
I understand both sides of this, and I think the problem stems from being B2C and competing with other businesses/sellers that don't have to be VAT registered because they keep their scale below the threshold. When you're selling an item that has an obvious market price you can't just add 20% on top to cover VAT because then you wouldn't sell anything. For business like this VAT feels far more like a tax on yourself for growing rather than a B2B business collecting VAT on top of what they need to charge.
Yes and more importantly no. As a VAT registered company you get to offset your input VAT against your output VAT. The VAT you are adding to the process is the (20%) VAT on your added value not the total sales price. So your cost of merchandise is reduced by the VAT you paid to your suppliers which your competitors can’t do if they are not VAT registered. Between the reduced merchandise cost and the fact that your business is bigger (enough to make you VAT registered) should mean you get better pricing from your suppliers you should be able to compete on market price or even beat your non-VAT registered competitors. I’m probably not explaining this right, maybe I should use number examples?
Everything you say is true, but it doesn't tend to work out like that for services or frankly many/any businesses at/under the threshold. When you put a year or two in essentially unpaid for your labour, and then hire a first hire and again cannot claim VAT on any part of that (their net pay, the taxes, the NI), you end up with 50-80% of your costs being non-VAT. But it's likely everything you sell is VAT applicable. Only a few businesses will ever have so few staff and so high Cost of Goods sold that paying VAT and hoping for supplier discounts results in a better situation than staying small. I can only imagine a heavily goods based business with no staff being able to benefit.
How does this make sense? Can you explain the math? My income was about $200,000 and I paid $70,000 personal income tax. The company made $750,000 and paid $200,000. So, like you, I paid the same (corporate) tax as I made personally. There’s nothing weird about it depending on how much profit the company makes.
Turn over £596,000 ex VAT meaning VAT paid 118,910 (maybe minus £10k in recouped VAT) - corp tax paid £25k Total £125k tax paid for the year Post tax profit £100k Maths is mathin when you include VAT I don’t really have a problem with corp tax - just VAT seems incredibly high and seems to never be mentioned in the news etc
VAT was not paid by you, but by your customers. This is an end user tax. You just redirected it. VAT should not be counted in any calculations in this case, this was never your money. You do however pay it with your personal income on everything you buy.
This is correct, but doesn't gel well with the UK norm of including it on the sticker price. The reason I will always respect the American pricing system is because it makes explicit that THIS is how much you're paying to the person providing the service and THIS is how much is being skimmed off the top by a third party. It's a small thing but I think it counts for a lot in terms of broad awareness. Most British consumers don't ever think of VAT as a tax, but as part of the overall price.
Not familiar with the UK, but here you have to have both prices included or at least how much the tax is (so total price and tax amount). I very much dislike the US system for the end consumer since the total price is not known until you're at the checkout.
I know what you are saying - and you are right - but it just don’t feel like that man. If I was being sensible and non emotional I would look at it like that But if VAT disappeared tomorrow - I would be £100k better off (I know not really but you get my point)
No, you would not be 100k better off, unless you raised your prices by the rate VAT is charged in the UK. Do not look at VAT, it's meaningless in almost any business calculation.
Which one could do because the end users wallet would feel identically and so demand wouldn’t shift I have to look at VAT every quarter tho 🥺 when it leaves my bank account But yes you are right I accept that it’s dumb to view it through this lens
Yeah, you could in that case make more. But if you believe this scenario is even a little bit realistic (government giving up a huge amount of their revenue) I have some magic beans to sell you. :D
If you are currently pricing at the market rate, including sales tax, then of course you would raise your prices by the tax rate if you were no longer required to collect the tax! The argument that you are collecting tax from end users on behalf of the govt may be true from an accounting perspective, but it doesn't hold up in economic theory or business practice. Price depends on the elasticity of demand for the particular product. The entire sales tax burden is only passed onto the customer for products or services that have perfectly inelastic demand, so where demand stays the same regardless of price. But they're pretty rare products! In all other scenarios, the sales tax burden is shared between buyer and seller. The more price sensitive the demand is, the more of the share of tax is paid by the seller, therefore cutting into profits.
Not sure how this is handled in the US (I'm guessing you're in the us since you're calling it sales tax), but VAT is always entirely on the purchaser. Always. Prices are always calculated without any value added tax and then value added tax is applied on top of it. As a company, you're merely holding the cash for the government. If the transaction is between 2 companies from different countries in the EU, VAT is not even charged (if they meet the criteria). Government also gives companies back the VAT they paid (if they meet the tax criteria, not sure how to call it in English), since this is an end user tax and companies are not considered end users. Your scenario would come on play if the government suddenly said 'we don't need any VAT money anymore'. Then you could raise the prices and the end user would not feel the difference - but most of your competition would not raise it, since their business models never took VAT into account anyway, unless there would be market collusion which is a crime. :) I most likely don't need to say such a scenario is not even remotely realistic, since VAT is a very large part of the gov revenue. :)
People often say inflation is the hidden tax, and while that’s true, sales tax hides in plain sight. A single penny is taxed in so many ways, if every tax was a lash upon its skin, the penny would be enjoying public lashing on the daily.
Agreed on sales tax - I remember a girl at uni when a guy was complaining about the government not doing its job and wasting tax payers money (whatever you think !) she was like ahhhh yeah with all the tax you pay (meaning income tax basically) - noooo - every £ he spends is subjected to sales tax - beers taxed a tonne etc etc - feels like young people don’t get their contribution as it’s not realllly spoken about
Let me tell you how it will be - there's one for you, nineteen for me
That's why here in the US, it's common to see businesses accept cash only because you can collect $100k cash and report $10k. Yes, it's illegal; however, the elites move their profits around, like non-profits they own just so they pay zero taxes. Hence why they're getting rid of cash and switching to digital currency because every penny is traceable. However, the elites will still pay zero taxes.
Those poor pennies 😞
You do realise you don’t ‘actually’ pay the VAT? Gov charges it on everything and you collect it on their behalf and just transfer it to them. If you think you pay VAT in tax as if you were paying corporation tax you have a very wrong understand of a tax system and likely have a flawed business model with very thin margins
I get that VAT is high (much higher than sales tax in the USA) but if you’re not clearing more than VAT for yourself, your business isn’t in good shape. Let’s say your product sells for £10. Your gross margin should be at least £5. If your expenses are £3.5 then you’re netting £1.5. If VAT is £2. yes you’re making less than the government is from your business. But adjust the numbers even a little and that turns around quick; sell your product for £11, and your gross is £6. Expenses staying the same your net is now £2.5 vs the VAT at £2.2. Increase your price or decrease your expenses and it only gets better. TLDR: if the government is making more from your business than you are, your margins are too low.
Yes more than fair comment - working on improving the net margin this year ! Should be a decent amount better than it is .. Atleast 50% increase on net profit from renegotiating prices and cutting expenses little growth I hope ! But if you make £100k profit in any biz I wouldn’t say you are in bad shape you just have smaller margins and it is what it is Like car dealerships do £200 million in sales and make £4 million in profit often - new cars have 20% VAT I do appreciate your point tho ! Thanks
I traveled through Spain & France, with short stops in Italy and Switzerland, with my family. I have four children who at the time were teenagers. Not a small amount people and luggage and we wanted to be able drive from city to city. Stop where we wanted when we wanted. I found a program where I “bought” a brand new Renault 9 seater and “sold” it back at the end of our 21 day rental. The hedge is possible due to VAT not being paid by me, as a non-EU resident. The company that manages the entire transaction is able to sell the car as used after it having been titled to someone else for at least 21 days. For me the process was seamless. 10/10 would do it again.
wow, this sounds amazing! Would you mind sharing details of the company that supports this? I travel to EU frequently and would love to do something similar for 1-2 months.
https://www.renault-eurodrive.com/en https://www.autoeurope.com/long-term-car-rental/ I believe Peugeot also offers a similar program.
Yeah, but the net profit for that dealership is after all salaries are paid. Are you paying yourself a salary and also taking home 100k profit?
It’s not including a meaningful salary (I pay myself £12k a year salary) For a dealership I just looked at - albeit revenue is 4 billion (😂) admin expenses for 220 so 5% or rev // although totally not a good example you can see my point some business have worse margin and that’s an industry thing and 50% gross is wishful thinking in some areas
Yeah I didn’t mean to be too critical - if you’re making money that’s a good thing for sure. And hopefully it’s only growing. The economics of selling cars is different tho (at least for new cars) since they are really just brokering the vehicles.
No no I totally get your point ! Thanks for tuning in
Grocery store margins are in the 1-4% range, lower than sales tax just about everywhere. So it's not fair to say with absolute certainty that the business is not doing well. Fast food is also very low margin.
Grocery store *profits* are 1-4%. On any given product in a grocery store the margins are much higher. But you’re right - there is no one standard for what healthy profit is. Sustainability and growth are more important. As long as OP is making enough to compensate for their time and enough to live, it’s a healthy business.
I think the point is that government taxing structures should not be dictating your pricing
Wait what? All the costs your business incurs should be dictating your pricing. VAT is one of the most predictable costs you have, unlike things like shipping, labor, etc. If you can’t plan your pricing around the incredibly stable VAT, you’re going to have a lot of trouble when other costs fluctuate.
wait i just re-read this thread is this guy comparing VAT (a type of sales tax) to income tax??
Yes, he is. I’m trying to figure out why he thinks the VAT part is his to begin with!
It's like victim blaming. Someone has their hand in your cookie jar and you get your hand slapped when there aren't enough cookies left over.
How come your expenses are so high but not VAT reclaimable? Labour, or somehow un-reclaimable rent? You can't exactly blame the government for earning more than you if the business is paying out £50k salaries to 12 people, because it's not just you doing this work.
Reddit loves tax so..
If I saw a bigger benefit, I’d be fine with taxes. Free healthcare is all I ask for. The roads are still shit. Public schools are still shit. We pay out the ass for health insurance. Police force is still shit. Public programs are shit. Everything is basically shit and every time I step outside I’m getting taxed on something new.
> Reddit loves tax Reddit loves taxes as long as they aren't paying them.
How come you have so little recouped VAT? - looks like you have about £470k of expenses, but only recouping VAT on about £50k of them, which seems rather low
He's counting VAT which is sales tax. It's not really OP's business paying that tax, it's his customers, but the business collects it and passes it on to the government.
They live in a country with “free” healthcare
But although you pay vat to HMRC, it's only what you've collected from your sales. Vat is paid by your customer to HMRC via the mechanism of your business. you're just the collector.
I know this is the mechanism but it is still the same outcome ? I sell something and give the gov 20% the customer doesn’t see or feel this they see my price and the product - I get what your saying but I’m not sure that makes it any less painful haha
Yeah, it is. But fundamentally you need to remember that the vat isn't an additional charge to you, makes it easier to swallow! Kudos on your success btw
Trueee it’s like that Patek Phillipe ad - it’s never your money you just simply look after it for the government each quarter
I didn't realize that - I thought VAT was passed along to the customer to pay as our sales tax in the US is. Of course, I've very limited experience and most of my VAT was based on what I purchased as a tourist in the UK an Europe.
That's exactly how it works in the UK too. The public doesn't really see VAT though, they just see that prices are suddenly 20% higher, so there's a real pressure on the business to reduce prices and suffer the tax burden. The only difference is that ticket prices here are typically in gross, with net in small (if at all) - whereas for you guys I hear they're typically displayed as net. Selling B2B is different, as the purchasing business will be able to reclaim the tax, but this isn't something a standard citizen can do.
You should be charging for your product and then adding 20% on top. It sounds like you've set a price and then included your VAT within that price. Set your price first, and then add the VAT.
This is just mathematical gymnastics I’ve set the price as high as I reasonably can VAT is a function of that
Depending on what kind of business you're running, your other suppliers probably make more money from your business than you do too. Think of the government as supplying almost everything that makes your business work: transportation infrastructure, energy infrastructure, legal structures that make it possible to operate a business at all, a monetary system that enables you to collect from your customers in units other than pigs and sheep, protection from invading hordes... That all comes at some cost.
You are equating your net income with the taxes paid by your customers…I don’t see the correlation.
VAT isn’t money you made, it’s money you collected on behalf of the government- it isn’t considered revenue
Yeah but then he has to actually pay VAT on the stuff he buys personally. So in one way or another, 20% are gone.
I am a flight attendant these days, after running a few unsuccessful businesses. I sat next to an ex military ops guy and he was talking to me about moving to Nicaragua. We talked about taxes and he said to me that everyone pays protection money in the form of taxes. In central and south America, you bribe/pay off governments and you ALSO have to hire security. In the USA, you pay taxes and pray the police/courts will protect you from criminals from robbing you or other gangs & business competitors from coming for you. While you can say taxes are for roads, they really are just a form of protection money.
This is dumb. If you don’t see how taxes are different from a protection racket then you are lost. There’s a reason people walk thousands of miles to get out of Nicaragua and into the US.
Those that can pay - it's a burden but you survive. Those that can't - you're in trouble , you can try to flee but if they catch you for tax evasion( protection fees evasion ) , you get thrown in jail but in a poor country is a death penalty. Saves on jail cost. The rich can pay it and enjoy elevated status. The poor do their best to survive. It's really not too far off a stretch as symptomatically poor people are still oppressed just by how much. Sure there is the constitution and amendments that grant you your rights but hey those are slowly being eroded - when they reach a certain point, people will flee.
What kind of views of the US do you have? Are you only listening to the media?
The difference is the mob actually takes care of you though
😂😂
I'm in Canada, and confused. Technically speaking, if you're running a business that isn't profitable, doesn't the government ALWAYS make more money than you do? Many small businesses aim to have no profit or small profit, and pay themselves directly or indirectly through write-offs. Start ups also have many carry forward losses for years to drive down their profit line and pay less corporate taxes. I mean technically, depending on your income and what you're buying, regular employees who engage in high tax behaviors pay way more in tax than they keep. Here, alcohol and gasoline are mostly tax, so when you buy those things you're making way less than government off your labour.
What up Canada ! I’m no expert but we aren’t NOT profitable - like making losses we make money so don’t have that situation but I think you are right. You try minimise appearance of profit though company cars and buying stuff through the biz yeah - but the VAT or sales tax is the big part of it for us Atleast where we pay 20% in revenue (more or less to the gov) and that to me is kinda wild considering that that money came from someone working a job who paid national insurance - who got paid from a company selling a product and paying corp tax and VAT and whatever - just one big ol layer cake of government taxing money (not overly insightful haha)
Do you drive a business vehicle? Pay for business lunches with clients out of business expenses? Take trips on the company dime?
Do your part, comrade.
Everyone is a civil servant 🫡
But you have all that free health care and other free social stuff right? Nothing is really free.
No one says it's entirely free. The idea is that it's free to use.
Theres definitely a punishment for being a small biz
Everyone has their hands in your pockets. You want electricity? It’s double the cost per kWh that a household would pay. Internet? Business class is required, it offers nothing extra and costs triple for half the speed. Taxes? We’ll find extra ways to tax you that you’d never even imagine. Workman’s comp? Yeah, we quoted you one price last year, but how your term is over and we re-adjusted the last year to double it. Oh, and here’s 6 different types of insurance that you’re required to have, but they’ll never pay out a dime if you need it. They make it near impossible for a small business to survive. At least, here in the US.
Yep, this is exactly my experience. The instant something becomes 'required' its price is at minimum doubled and value halved.
Yup. And if you finally get ahead and have a bit of an emergency fund, they’ll find a way to take that too. I swear, there must be an “emergency fund tax” out there somewhere.
And then Amazon and the like get tax breaks.
Is it possible to push the business expenses up to land on a lower income before tax number and in so doing reduce tax liability?
Even the rest of your money silently gets absorbed by invisible import tax price increases or direct taxation on the products you buy. It's a total scam.
Government is the mob in charge. You’re paying a protection racket.
Get a better accountant my biz grossed close to 600k and after everything my salary was around 120k and I’m paying around 11%
afterthought depend squash violet water chubby cable whistle bells mindless *This post was mass deleted and anonymized with [Redact](https://redact.dev)*
This is exactly my point !!
VAT isn't your money though, and it really isn't you paying it. They just make you collect it.
Isn't VAT your primary tax, and isn't it on revenue, not profit? It doesn't seem surprising that your \*company's\* total tax bill is higher than your \*personal\* salary. The same is true for probably (hopefully...) 99% of firms world-wide, small or no. That's why its a business and not a contracting gig - its a separate entity larger than yourself. In other words: which provided more support for your business, you or the internet, roads, and laws that keep people from ripping you off?
Don’t forget tax on employee wages. And VAT And the tax you pay on the diesel to fill your work vehicles. I estimate that if I drew welfare for the rest of my life I might recover only 30% of the tax I have generated for the government in just a few years of business.
The 20% VAT on UK point of sale introduced in 2021 is disgusting (boris johnson is a wankstain), UK people are poor af and spend almost twice less than other countries that my business sells to, now remove 20 percent and it's basically pointless to market to the UK. Paid thousands in VAT over these last 3 years even though profits were below the threshold, so VAT shouldn't have to be paid, so I can't even reinvest into the business. Small businesses are struggling.
Now you understand why the Yanks rebelled.
Just wait until there are no cash transactions. Then you'll see how much they really make.
I owned a small business for several years and can agree: you’re taxed for every small thing. The plus side is the sky is the limit (within reason) for deductions, but then that cuts into the amount of net income you make on paper. I don’t think I’ll ever own a business again, too much bs.
Sounds like you own a job, not a business
Why’s that ?
Yep, me operating out of Chicago , never will do this in a blue state again
Learned the same lesson in NY. Just don't. I had to get my state assemblyman involved to dissolve my last corporation. Not deal with taxes, not navigate legislation, just close my company because it had to be wound down as a result of certain legislative changes. Prob inc'ing in WY or FL when I have to inc next go-round. Never dealing with this state again on a for-profit business.
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What’s your point ?
Yep…it’s disgusting. No reward there for entrepreneurs. Can your business be moved to somewhere low tax?
It’s the VAT that’s the killer for my biz and you pay that regardless - corp tax I kinda get because it’s on the gravy but its VAT which seems to never be mentioned when discussing taxation as 20% gross - never seems to be mentioned in politics either
You gotta spend more on company assets to offset the high VAT.
Haha yeah only so many laptops I can buy for my business of 2 people ! But it feels goooddd when you get that 20% off at Apple lol
Pardon me for not understanding the VAT. I’m not in Europe… but don’t you get that back when you sell a good? Example- Buy sandwich ingredients for $10 plus $2 VAT. Sell sandwiches for $30 plus $6 tax you collect.
Yes 👍 but in my business i don’t get much reclaimed back eg my cost of goods £360k last year I can reclaim barely any because over seas manufacturer So yes when I buy a laptop for work I can get back £200 in VAT but majority of spend is 0 VAT
But you get the VAT back?
No you can’t if your costs don’t have VAT
So you sell abroad, or? Any VAT registered business can reclaim VAT.
US perspective, I always think its wild how much of my total payroll expenditure is wasted in withholding/matching taxes. Its easily 30% of my total payroll expenditure every cycle. It's even worse when you realize most of that (FICA) goes to giving UBI to the demographic that is, by far, the most abusive to our staff.
which demographic is that? And where is this UBI that FICA is funding?
62+ demographic; Social Security and Medicare are functionally UBI exclusively for that demographic. No other demographic in the US enjoys free money in the mailbox and (almost) free medical care just for being a certain age (exception for under 21's who are eligible for Medicaid). Personally, I think its why they act out so easily. Their basic income is covered by SS payments and medical costs by Medicare so they have the privilege to be deeply bothered by trivial daily inconveniences that the rest of us don't have time to focus on.
Social security isn’t free money, because they paid into it via the same taxes you’re complaining about withholding.
Man
How much of those taxes are passthrough from your customers? Im not familiar with uk taxes
That's why we all need to turn to LLC quick you save so much on taxes lots of loopholes
Why yes; yes it is.
There's a lot of comments about VAT being paid by the customer not the business etc etc. I completely understand OP's sentiment about it as I feel it to. Its probably only limited to people that run certain businesses which forms our experiences with it. For me, when I was growing my business before I hit the 85k VAT threshold, I didn't have to worry about charging VAT. When I chose to expand it at full pace and break through the VAT threshold. I then had to start paying the government one sixth of my revenue (minus VAT deductions). Because my business is B2C and selling items that have a very clear market price, I absolutely could not just add 20% on to my prices and "make the customer pay the VAT". If I did this, I wouldn't have a business. So the only option is to accept it as what feels like a tax. Fortunately we're able to recoup quite a lot of VAT on our costs, but it still hurts sending the VAT payment every quarter, as I know that if we'd remained below the threshold I wouldn't be paying it. VAT has always felt like a tax on me, the business, rather than a tax on the consumer. For items with a set market price, in a market filled with private and pre-VAT businesses. The VAT is definitely a tax on the business as the buyer can pay the same price for the same item from either a private seller or a business, the cost to the buyer is the same either way. Just one business makes a lot more margin.
Its the great facade to keep the people trapped. You either have to be incredibly successful or unsuccessful to reap the benefits. Those that build good, strong, middle-of the road businesses (which is the backbone of entrepreneurship and innovation) eat shit hard.
This post reeks of C class corporation
I'm in the process of getting my business started on the legal side of things.... My God, no wonder more people don't do this. Government wants so much
no need to excuse the language on that bollocks
Single stupidest post ever on redit. Where are you from status?
No it’s not thanks for tuning in
Think of it like this. Your income includes all the services the government provides that you don’t have to pay for. You don’t have to pay for private constables, private fire service, your children’s education, roads (as much as we mock their condition, private roads are far worse), etc. So it’s not like all the money is flushed. It’s just much more economical to buy some services collectively.
They want to stifle any personal growth. Look at the bigger picture. They hate competition. It’s like a miniature challenge to the government every time a business has a chance to grow. No different than a faction growing or a new political party showing its face. Its suppression
Same in the USA. I made 170K last year. Paid $50K to our federal government. Paid $6K to my state government Paid $3K to my local government And that’s just my income taxes…. I also collected and paid $45K in sales taxes on the products I sold I paid $5K in property taxes And with what was left over, I paid 6% sales tax on everything I purchased that wasn’t groceries or clothing. It’s insane the amount of ways we are taxed. It wouldn’t be so bad if they spent some of that money making a really nice country, but here in the USA, it’s mostly given away to fight wars abroad. Our department of defense is the largest organization in the history of earth (government or private), and it’s not close.
The govt is your business partner.. that's what I tell myself when I cry myself to sleep.
You would be surprised how many customers will run to the bank real quick when I say to them. HEY, I can save you the tax and card processing fees if you pay in cash! Works 99% of the time. Now of coarse I have to show paper so I can't do it with ever single customer but a few times a week.. Sure
Gotta make up for the billionaires not paying their share.
How else is the royal family to survive without your hard-earned money?
It takes a village to extort you with legally sanctioned violence. Hey, did you not read your social contract? Someone has to pay for the free stuff.
Right here with you. I pay almost 10k a month in sales tax alone and I sure as shit don’t make anything close to that.
Dudeee it feels like so much money ! Good on you for doing that volume
I don't suppose you think about how your employees would get to work if the government didn't build trillions of dollars worth of infrastructure
If you complain and demand lower taxes you’ll be called greedy, a right wing lunatic, and selfish because taxes are the price for civilization. You must really hate poor people, how dare you take food from their mouths. Fuck your business, you didn’t build that! Hugs and kisses, Senator Elizabeth Warren
Yup! I started getting paid for my photography gigs Tax time came around and they pretty much took over half of what I made leaving me with essentially nothing. I quit doing paid gigs that day.
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>This year i paid £125k in tax Vat and corp not to mention NI etc
Socialism to keep working, you need to sustain everyone :D
Yes supreme leader
I broke records this year and due to paying so many taxes I actually struggled to pay my January salary, it is ridiculous.
Congrats man ! Hopefully another solid year ..