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Thread: To VAT or Not to VAT

  1. #1

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    Default To VAT or Not to VAT

    I am currently thinking about registering for VAT voluntary that is...

    Pros: I would get at the very least a grand back on my recent purchases.
    I would get vat back on most future purchases.
    My rent for office would be 40 quid cheaper per month.
    internet and phone etc would make a small saving.

    But the main reason is that I have some business clients whom rent P.A. from me and they would obv make a saving and I would look more pro shall we say.

    Cons: Well Paperwork every 3 months.
    Have to charge VAT to everyone else.

    There is probably more and I have been advised from a few friends who have businesses that say the tax man takes a keen interest in everything you do when your reg for VAT and I shouldn't go near it.

    Any thoughts? Anyone reg for VAT?

  2. #2
    Disco Dude! DeckstarDeluxe's Avatar
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    Well would your private clients all paying 20% more affect your business? You know your client base better than us......
    The Cheltenham Wedding DJ
    www.cheltenhamweddingdj.co.uk

    DDWES Event Hire

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  3. #3

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    Quote Originally Posted by scott23 View Post
    But the main reason is that I have some business clients whom rent P.A. from me and they would obv make a saving and I would look more pro.

    How will it save them money? For example you charge them £500 for a PA hire, and being VAT registered you are obliged to add £100 VAT which you put into your account for 3 months before handing it over to the VAT man. Your clients can then claim back the £100 in 3 months time (no gain) If you're not registered you charge £500, they pay it and that's the end of it, no vat to pay you and the money stays in their account and you don't have the hassle of the paperwork, VAT inspector visits, possible fines if you don't get your returns and payments sent in time, and the dubious pleasure of acting as a unpaid tax collector for HMRC

    Cons: Well Paperwork every 3 months. Already dealt with

    Have to charge VAT to everyone else.

    This is the big one, being VAT registered won't make you look better to your clients who aren't, it will make you 20% MORE EXPENSIVE, if you think you can increase your prices by 20% without loosing customers, DO IT and increase YOUR profits, not George Osbourns

    There is probably more and I have been advised from a few friends who have businesses that say the tax man takes a keen interest in everything you do when your reg for VAT and I shouldn't go near it.

    The VAT inspectors will take extra interest in you if they think you are not following the rules, or your returns don't broadly follow your industries average returns, and rest assured these inspections can be a pain to say the least

    Any thoughts? Anyone reg for VAT?

    Unless your turnover is going to exceed £81,000, (registration is then mandatory) or the vast majority of your work is for corporates, and the VAT you can reclaim makes financial sense, take your friends advice, and run a mile
    Pete
    Inside every old person, is a young person wondering 'What The Hell Happened'. Tempus Fugit

    Disco 4 Hire

  4. #4
    Resident Antagonist Benny Smyth's Avatar
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    One thing worth noting is that you don't have to add 20% onto your fee - you can charge what you charge now, but will have to take the 20% hit yourself instead of having your customers pay the extra. Or find a middle ground (i.e. charge 10% more and take a 10% hit).

    Best advice to give is grab a calculator. You mention that you will be getting some money back from recent purchases, but was that an investment? Is that spend likely to be repeated on a regular basis? If so, then yes do get yourself VAT registered. If not, then you need to work out how much VAT will benefit you. Do you charge extra? If not, will the 20% hit you take be offset by the VAT of your expenses that you can claim back?
    Last edited by Benny Smyth; 25-02-2015 at 01:53 PM.

  5. #5
    Solitaire Events Ltd's Avatar
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    Don't do it. It killed me and I had no choice.

  6. #6
    DazzyD's Avatar
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    All good advice!

    And the best advice:

    Quote Originally Posted by Solitaire Events Ltd View Post
    Don't do it. It killed me and I had no choice.
    I can't understand why any business would even contemplate an extra layer of red tape when they don't have to and when there are very little benefits in doing so. Like Benny said, you don't have to charge your clients 20% extra but then you'd be liable paying 20% of your income to the tax man in addition to the 20% over Lower Earnings Limit you're already paying in Income Tax. I know people in the housing sector that have split their property portfolios in to smaller groups and managed my newly-formed businesses just to lessen their tax liability.

    Also, if you find yourself competing on price, you've no chance of being comparable to another operator who doesn't charge VAT which instantly makes you less competitive in the market place. Only you can decide if voluntary VAT registration is suitable for you but you need to know all of the facts before making such a huge decision. If you're determined that it may be a viable option for you my advice is to book an appointment with a really good accountant and take it from there.
    Dazzy D
    Lightning Disco & Entertainment

    Born to make you party!

  7. #7

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    Quote Originally Posted by Benny Smyth View Post
    One thing worth noting is that you don't have to add 20% onto your fee - you can charge what you charge now, but will have to take the 20% hit yourself instead of having your customers pay the extra.
    But why would you want to do that? surely the object it to make maximum profit and 20% is a big chunk to give away to HMRC unless you really have to.


    Quote Originally Posted by Benny Smyth View Post
    Best advice to give is grab a calculator. You mention that you will be getting some money back from recent purchases, but was that an investment? Is that spend likely to be repeated on a regular basis? If so, then yes do get yourself VAT registered.
    If meaningful quantities of equipment was to be purchased on a yearly basis, then older equipment would most likely be disposed of, this equipment is subject to VAT being added to the sale price achieved, and subsequently handed over to HMRC, diminishing the original advantage gained

    Quote Originally Posted by Benny Smyth View Post
    If not, then you need to work out how much VAT will benefit you. Do you charge extra? If not, will the 20% hit you take be offset by the VAT of your expenses that you can claim back?
    True, but I've never met anyone trading with the general public (who can't claim the VAT back) and especially when faced with competition from similar non registered businesses, who have benefited financially from registering. I have however come across a couple who registered due to their turnover exceeding the threshold, who subsequently have found themselves in big trouble due to the creative accountancy employed to stay competitive with their rivals
    Inside every old person, is a young person wondering 'What The Hell Happened'. Tempus Fugit

    Disco 4 Hire

  8. #8
    Resident Antagonist Benny Smyth's Avatar
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    Quote Originally Posted by Pe7e View Post
    But why would you want to do that? surely the object it to make maximum profit and 20% is a big chunk to give away to HMRC unless you really have to.
    Again, if you're able to claim back enough to offset the 20% hit you would take (or whatever percentage you choose to take) then your profit will be unaffected.


    Quote Originally Posted by Pe7e View Post
    If meaningful quantities of equipment was to be purchased on a yearly basis, then older equipment would most likely be disposed of, this equipment is subject to VAT being added to the sale price achieved, and subsequently handed over to HMRC, diminishing the original advantage gained
    If you trade as a limited company (for example, DJ LTD), you can sell said equipment to yourself (for example, John Smith) for a quid plus VAT, then you as the individual can sell on for whatever. I don't know if the OP is a limited company or a sole trader but there are ways and means.

  9. #9

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    Well there may be a set of circumstances when it would be advantageous, but I've yet to come across it for your average mobile DJ, it's all negatives IMO. Regarding your second point about a Ltd company selling assets off to the director at extremely discounted prices, you're OK until the VAT/TAX authorities find out, in reality they may never find out, but if they do, they take a dim view on tax evasion. The couple I referred to in my last reply, started a second business in the wife's name and split the work between each business thereby reducing their turnover and liability for VAT registration. Unfortunately for them the HMRC did not see it that way, they were taken to court/tribunal and ended up with a penalty payment and a huge revised demand for unpaid tax/vat. They struggled on for a while but are no longer in business, the 4 bed des res has been replaced with an average sort of semi.
    Inside every old person, is a young person wondering 'What The Hell Happened'. Tempus Fugit

    Disco 4 Hire

  10. #10
    Resident Antagonist Benny Smyth's Avatar
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    Quote Originally Posted by Pe7e View Post
    Regarding your second point about a Ltd company selling assets off to the director at extremely discounted prices, you're OK until the VAT/TAX authorities find out, in reality they may never find out, but if they do, they take a dim view on tax evasion.
    What can the taxman do - fine you for selling something for less than it's worth? And who decides what something is worth?

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