VAT (Value Added Tax) and business

Value added tax (VAT), or goods and services tax (GST) is a consumption tax levied on value added. In contrast to sales tax, VAT is neutral with respect to the number of passages that there are between the producer and the final consumer; where sales tax is levied on total value at each stage, the result is a cascade (downstream taxes levied on upstream taxes). A VAT is an indirect tax, in that the tax is collected from someone who does not bear the entire cost of the tax.

Here is a question about VAT and answer I recently came across on a business forum.

Question:

A limited company in the building trade exceeded the VAT threshold in the last tax year (08/09) but didn’t realise until now as the final accounts are being prepared. It went about £13k over the top.

They are happy to register for VAT and charge for future work however what should be done about last year’s trading?

Obviously it’s too late now to go back to the clients and add VAT to the invoices (if indeed you can charge retrospectively) but does that mean there’s a VAT liability that needs to come out of the company profits?

I also understand that the business can apply for the flat rate scheme with a 1% discount in the first year, can this be backdated too if there are liabilities from last year?

The company is now trading in this tax year and not charging VAT, should they start with immediate effect pending a VAT registration number?

Answer:

Your first task is to find out exactly when the registration threshold was exceeded. It’s not based on accounting years, but any rolling twelve month period. If that was exceeded for example at the end of November 2008, then registration is required from 1 January 2009 - there’s a gap of 1 month between exceeding the threshold and the date of registration. It also means that you don’t pay VAT for the whole year that you exceed the threshold, just from the due date.

If you register late - more than 30 days after exceeding the threshold - there will be a late registration penalty. For registration less than 9 months late, that’s 5% of the net VAT due from the correct date of registration to the date that you advise them. Can you buy something with lots of VAT - a vehicle for example - to reduce the VAT due and therefore the penalty. Be sensible - it’s only 5% so don’t waste money on something that you don’t want.

In terms of past VAT, yes the company will have to pay it. If they have been working for VAT registered businesses, the businesses will probably accept a late invoice for the VAT element because they can reclaim it. Private householders however cannot be expected to fork out more, so the company will have to pay it. The VAT won’t be added on top of what the company charged - the charge will be deemed to include VAT and that’s worked out at 3/23 of the gross amount (after 01/12/2008) so on £1,000 the company will have to pay just over £130, not £150. Any VAT suffered on materials and expenses can be deducted. (This assumes normal VAT not flat rate, of which more later)

It does come out of company profits (unless recovered from customers) so can be taken into account in preparing accounts.

The company will also have to pay VAT on current trading, so yes it should be adding VAT to invoices, or allowing for it in prices. (In general, if you are dealing with the general public it’s best to quote a price that includes VAT but without referring to it. For example quote £1,150, not £1,000 plus VAT. That’s because lots of consumers will offer you cash and expect the VAT to be knocked off. Not only is that illegal, what’s the point? There’s nothing in it for the company)

How to choose a business niche to compete in?

Whatever business you start, you have to compete with a large number of similar companies in your field. Therefore it is better to choose a business in which you can bring innovation and difference as compare to your competitors. The selection of business is a major problem for most of the people because they don’t know from where to start. They think that they can start any business to earn sufficient amount of living. The basic reason of entrepreneur failure is that they start a business of which they have no knowledge or experience.

The prior knowledge and experience of the business you are going to start is very beneficial. It will help to compete with your competitors due to good foundation and basics in that particular field. You should be passionate about your business to cover the long distance of your business development process quickly. You must know your audience to produce products and services according to their requirements. You should include unique features in your products and services which other companies don’t have in theirs. When you are going to start an online or offline business then you need to think about existing companies and their images in the market.

You have to compete with a large number of competitors in every department and at every stage of the business. This competition can be in marketing, management, quality and production departments. You should set competitive prices of your products and services as compare to other companies’ products and services. It is necessary to know your competitors strengths and weaknesses to give them tough time. You must focus on weak points and drawbacks of your competitors’ products and services to produce better quality products. You must be aware with the latest trends in the market regarding your products and services. You should get feedback from your customers and try to communicate with them on regular basis. The more communication, the stronger will be the relationship, which creates loyalty in your customers.

Entrepreneurs can fight with competitors in those areas where they are not good at. A deep eye on your competitors’ marketing and management strategies is necessary to find out any flaw because it will help you in devising your own flawless marketing strategies. You must know quality of your competitors’ product or service, current strategies, market image and customer requirements. You should find out skills of your competitors’ workforce to compete with them at production, marketing and management level. It is not easy for a new company to compete with existing companies because they have deep roots in the market but your passion and constant struggle will make it possible.

In short every business has to face its rivals in the way of business development. You should know your quality products and professionals to fight at every ground. The competition among companies has increased due to globalization because now there are no physical boundaries among the countries so companies have to be more careful to compete with a large number of similar companies of the world.

Taking care of business in Sweden

First learn how to navigate the Swedish business landscape, and then aim for the top.
Having a population of just over nine million has not stopped Sweden from becoming a well-respected international leader in business. The worldwide successes of companies such as Volvo, Saab and Ikea help to illustrate that the Swedish way of doing business is effective.

But, as can be expected, there are some aspects of the business culture in Sweden that are quite different from the business customs of other countries, which means that it’s a good idea to be aware of the way Swedes work before that first handshake.

Relaxed atmosphere
A casual atmosphere dictates the manner in which people address each other at work. From the classroom all the way to the boardroom, titles like “Mrs” or “Dr” are things of the past. Students and teachers, patients and doctors, employees and employers – everyone is on a first-name basis.

Work attire is often conservative, but casual. Employees may wear sandals or tennis shoes at the office, switching back to sturdier outdoor shoes when they head home.


Casual is king in many workplaces in Sweden.

Althea Boman, a teacher and businesswoman in Örebro who moved from the USA 15 years ago, remembers being quite surprised to see sandals at the workplace. She says: “In the States, people are not interested in seeing your toes, no matter how nicely pedicured they are. That certainly took a little getting used to.”

Lagom as usual
The Swedish word “lagom” is not just a word. It's a concept that doesn’t easily translate into English. Essentially, “lagom” means “just right” or “adequate” and can be used for just about anything.

The “lagom” concept or mentality exists in Swedish business as well. Employees, and many employers, often focus on doing exactly what’s needed and doing it well, rather than doing unnecessary things. This concept can be frustrating for foreigners to understand sometimes.

“The concept of ‘lagom’ has been hard for me to get a handle on,” says Ben Campbell, who moved from Australia four years ago. “I remember asking a co-worker a question once about how much time should be spent on a particular task, and he answered: ‘A lagom amount,’ and walked away. I still have no idea what a ‘lagom’ amount is.”


Certain Swedish expressions can be tricky to get the hang of, but they can be of great help once you know them.

Shorter chain of command
Swedish companies tend to be less hierarchical than companies in many other countries when it comes to internal organization. This means that a managing director of a firm is more openly available to his or her employees, erasing some of the chain-of-command arrangements that exist in other countries. In general, it’s possible for employees to take their comments, questions or concerns directly to the boss.

The majority of Swedish workers belong to one of several labor unions. Due to the strong union presence in Sweden, employees experience excellent working conditions compared with many other countries. Equality in the workplace and job security are of utmost importance, so unions work hard to assure that employees feel secure and unthreatened at work.

Swedish workers tend to rely heavily on compromise and consensus when it comes to making decisions and reaching solutions. It’s generally felt to be much better if policies and ideas are discussed openly and across all levels before any conclusion is reached.

Stereotypically, Swedes do not feel that it’s necessary to stand out in a crowd, or be the individual who makes a choice for the entire company. While this assures a sense of employee comfort throughout an organization, it can mean that decisions take some time to be made.

The sacred break

Never disturb a Swede during "fika."
One word that every person needs to know before working for or doing business with a Swedish company is “fika.” “Fika” is a break taken from work, the purpose being to drink coffee and chat. “Fika” breaks in Sweden are sacred, and there are usually two or three every day, so don’t be surprised if colleagues or business associates are suddenly unavailable as they take a little caffeine break.

Punctuality is very important for Swedes, especially when it comes to business. It’s quite common that Swedish employees arrive on time and leave on time – and have "fika" on set times. Many Swedes place very high value on their private lives and therefore work overtime only when it’s absolutely unavoidable.

Whether enjoying a “lagom” cup of coffee during a “fika” break or putting on sandals when you get to the office, being attentive to the Swedish way of working and doing business will help to make your professional experiences with Swedes quite enjoyable.

Dos and don’ts

Dos:

• Know the language. While English is commonly spoken in Swedish businesses, it’s a good idea to learn as much Swedish as you can before getting started. Even if you’re doing business with a Swedish company for a short period of time, picking up a few terms and phrases will go down very well with your Swedish colleagues.
• Know the Swedish tax laws. Especially if you are starting a business in Sweden, having done the tax research and having the paperwork completed is key to getting off the ground.
• Be on time. Show up on time, stick to your agenda and finish on time.
• Plan ahead. Make sure that you give people time to prepare for a meeting or assignment.
• Work hard. Be prepared and make sure that you know and understand the red tape that you will have to cut through to succeed as a business or as a worker.
• Give yourself time. If you’re starting a business in Sweden, it can be very hard to break in and find a client base – as in any other country. Be patient and have a back-up plan and/or another source of income.

Don’ts:

• Use force. Easing your way into a company or into relations with a company takes time. Swedes are not so receptive to new thoughts/plans if they feel that they are being forced upon them.
• Boast or brag. Generally, Swedes are modest and avoid embellishing their accomplishments.
• Show disrespect. This may seem obvious, but it’s important: understanding the Swedish culture and work ethic will mean that you respect your colleagues or business associates. Watch and listen to get the feel of the situation before you act.