Charging VAT

[Nat]

Hi all,

I am going to have to start charging VAT from next month and would like to hear from those who have done the same thing.

Did you find it a good or bad thing? Did you find some people were being put off by your prices with the VAT added? When pricing materials did you completely ignore the VAT and then add your mark up? Any ways you can put this to your advantage?

Obviously there are plenty of successful plumbing businesses out there who charge VAT but I am starting to worry I won't get any work!

Many thanks,

Nat

 

[CES]

I've been VAT registered since the word go. The myth about VAT registered business being more expensive and you wont get any work is a lot of rubbish. People don't buy on price alone, if this was the case we would all be driving Nissan Micras.
You will get people you will ask you to knock the VAT off for cash, dont be tempted as sods law you will get a VAT inspection. The taxman can't send you to jail remember, the VAT man can!
I price my jobs using my trade list, add my markup and then add VAT. I don't get every job but then again, neither does anyone else. Just make sure you claim the VAT back on everything you buy, remember this as there is some stuff you buy at 20% VAT and charge out at 5%.
If you get stuck, ask around, once you get into the swing of doing your return its not the hassle you first think it is.

 

[tamz]

So your time has come to join the ranks of the unpaid tax collectors :smile:

It has advantages and disadvantages but mainly disadvantages. You claim vat back on everything you buy and charge it on everything you sell including yourself.
It will make you a bit more expensive for private work as your labour charge is 20% higher.
How much higher your overall price has to be to make the same amount of profit varies with the amount of materials you supply. It make no difference if you do work for another vat registered business as they will claim it back.
You will undoubtedly loose out on some work.

Say a job costs £500 + vat for materials and you want £400 to fit it.
Unregistered your materials cost you £600 and your 400 labour = £1000
Registered, your materials cost 500 your labour 400 and your vat 180 = 1080 so your price for that job is 8% more expensive.

another job £250 + vat for materials materials and 700 labour unregistered = £1000 registered = £1140 14% more expensive.

 

[hammers4spanner]

I am on the verge of vat club and from what i gather from the info i have been given it depends on your type of work .If i end up going vat registered then i do expect to lose some work from private custs as labour will be at slight higher charge . However as i do alot of schools,colleges ,hospitals,offices etc etc being vat registered shouldnt make to much difference in my pricing as firms i price against are same boat .

 

[Nat]

So your time has come to join the ranks of the unpaid tax collectors :smile:

It has advantages and disadvantages but mainly disadvantages. You claim vat back on everything you buy and charge it on everything you sell including yourself.
It will make you a bit more expensive for private work as your labour charge is 20% higher.
How much higher your overall price has to be to make the same amount of profit varies with the amount of materials you supply. It make no difference if you do work for another vat registered business as they will claim it back.
You will undoubtedly loose out on some work.

Say a job costs £500 + vat for materials and you want £400 to fit it.
Unregistered your materials cost you £600 and your 400 labour = £1000
Registered, your materials cost 500 your labour 400 and your vat 180 = 1080 so your price for that job is 8% more expensive.

another job £250 + vat for materials materials and 700 labour unregistered = £1000 registered = £1140 14% more expensive.

Thanks Tamz. Sage advice as always.

You mentioned there are advantages. What would those be?

 

[Kev the gas]

Vans/tools and diesel become 20% cheaper over night !

 

[SimonG]

Mate of mine is vat registered and said the biggest plus is that his accounts are kept in better order due to the quarterly vat. Says it got him into a better routine to keep it all spot on.

 

[tamz]

The advantages are not many but as said everything you buy in the day to day running of your business will be 20% cheaper.
If you do new build stuff you will get a few grand back each quarter.
Apart from that it is all downhill :lol:

 

[hammers4spanner]

Would you say it benefits a business if your spending 9 grand a month on materials???

 

[SimonG]

If your spending 9k a month on mats alone then your turnover will be well over the vat threshold.

 

[hammers4spanner]

It was last month and jobs i am pricing are vastly increasing

 

[tamz]

Would you say it benefits a business if your spending 9 grand a month on materials???

Only if you are doing zero rated stuff.

 

[hammers4spanner]

Can you open up and second business is you wish to avoid going vat registered? E.G joe bloggs plumbing then another sister company joe bloggs heating

 

[Nat]

Can you open up and second business is you wish to avoid going vat registered? E.G joe bloggs plumbing then another sister company joe bloggs heating

I don't think so. If in the past 12 months (and you need to check this every month on a rolling basis) you have turned over (all of your incoming money, without deducting materials or anything) more than 77k you HAVE to register. There is no choice. You really need to keep an eye on this and do monthly records because if you do go over the threshold and carry on trading without adding the VAT when HMRC catch up with you they will make the assumption that you have been charging VAT and will take a load of money off you.

 

[TBServices]

Can you open up and second business is you wish to avoid going vat registered? E.G joe bloggs plumbing then another sister company joe bloggs heating

Best way to reduce your turnover is to decrease the amount you supply, but then you lose profit on it.

 

[hammers4spanner]

I don't think so. If in the past 12 months (and you need to check this every month on a rolling basis) you have turned over (all of your incoming money, without deducting materials or anything) more than 77k you HAVE to register. There is no choice. You really need to keep an eye on this and do monthly records because if you do go over the threshold and carry on trading without adding the VAT when HMRC catch up with you they will make the assumption that you have been charging VAT and will take a load of money off you.

Dont you just love the tax and vat man

 

[Destroyer2813]

Can you open up and second business is you wish to avoid going vat registered? E.G joe bloggs plumbing then another sister company joe bloggs heating

I know a man that did this so his big jobs heating installs etc go through the vat company and the little bits tap changes ballvalves etc go through the other

 

[tamz]

Can you open up and second business is you wish to avoid going vat registered? E.G joe bloggs plumbing then another sister company joe bloggs heating

No

I know a man that did this so his big jobs heating installs etc go through the vat company and the little bits tap changes ballvalves etc go through the other

I hope he is saving up for the big bill which will arrive someday.

 

[theanalyst]

A guy I know dissolves his limited company at the end of the year and starts a new one if he is going to hit the vat threshold. I dont know how he does it but it seems shady as hell!
But hes been going for years and still seems to do well! It can't be legal though, surely?!

 

[Ray Stafford]

Rules from HMRC website:

[h=2]Do not avoid registering for VAT by artificially separating business activities[/h] If you run more than one business, the sales in all those businesses must normally be added together to determine whether or not you must register for VAT.
However, if you are involved in the running of several separate legal entities, you may not need to combine the sales of those businesses to find whether you need to be VAT-registered.
If HMRC decides that you have artificially separated one business into smaller parts to avoid registering for VAT, it can decide that the entire business is a single taxable person and therefore must be registered for VAT. See the description of 'taxable person' in the section in this guide on who can and can't register for VAT.
Situations that HMRC may consider a single taxable person for VAT purposes include:

• Separate entities selling to registered and unregistered customers. The VAT-registered entity sells only to VAT-registered customers, and the entity not registered for VAT sells to customers who are not registered for VAT.
• The same equipment or premises being used by different entities on a regular basis. The premises and/or equipment are owned by one of the parties, who charges rent to the others. This situation may occur in businesses such as launderettes and takeaway food operations.
• Splitting up what is usually a single sale. This is common in industries such as the bed and breakfast trade, where one business supplies the bed and another the breakfast.

If you deliberately avoid registering for VAT, you may be liable to a penalty. For serious offences, the matter will be investigated and you may be prosecuted.

Source here.

 

[Orry Clayton]

Actually you can, but I wouldn't suggest doing it...

Provided they are separate entities (companies (or one SE and one co.)) and that they are both run 100% separately (That means different vehicles, tools etc...). Then yes you can have two separate businesses, one registered, the other not.

Other stuff like making wife part owner of one etc.., helps also. As said I wouldn't suggest it as it's not for the faint-hearted. A lot of work and planning is needed.

Also, if you want to avoid paying high Child support, there is a nice little trick with putting company in new partners name and you being director of business only taking a minimum salary.

As for getting 20% off your expenses it's closer to 16%, or 1/6th the gross amount.

I am a qualified accountant, so I know my stuff.

 

[Orry Clayton]

A guy I know dissolves his limited company at the end of the year and starts a new one if he is going to hit the vat threshold. I dont know how he does it but it seems shady as hell!
But hes been going for years and still seems to do well! It can't be legal though, surely?!

I knew accountants that did that for clients, so to take advantage of capital gains tax... that soon stopped when it was ruled in HMRC favour.

 

[peteheat]

I run separate "Trading AS" businesses as it helps me manage the different headings so to speak, however all share the same VAT number because they all share the same basic overheads, vans, premises etc.

IMHO to try avoiding the revenue (in it's many forms) you would need to be a financial genius or employ a top level accountant that you can trust (????)

Keeping all paperwork in a manner that does not raise questions is often only achieved by being honest with yourself and your books, there will always be small opportunities but keep them small don't get greedy.

If on inspection one item is found you have opened Pandora's Box that can stay haunting you into retirement and beyond the grave.