To VAT or Not to VAT

[scott23]

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?

[DeckstarDeluxe]

Well would your private clients all paying 20% more affect your business? You know your client base better than us......

[Pe7e]

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

[Benny Smyth]

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?

[Solitaire Events Ltd]

Don't do it. It killed me and I had no choice.

[DazzyD]

All good advice!

And the best advice:


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.

[Pe7e]

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.



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


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

[Benny Smyth]

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.



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.

[Pe7e]

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.

[Benny Smyth]

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?

[rth_discos]

What can the taxman do - fine you for selling something for less than it's worth? And who decides what something is worth?

It's the cost of trying to fight the taxman that will send you under.

It can seem very easy to do at the time, but if it bites you on the arse, it'll bite very hard.

Much easier to stay on the right side of the tax rules, and you'll never need to worry about looking over your shoulder.

[Benny Smyth]

It's the cost of trying to fight the taxman that will send you under.

It can seem very easy to do at the time, but if it bites you on the arse, it'll bite very hard.

Much easier to stay on the right side of the tax rules, and you'll never need to worry about looking over your shoulder.

But what I have suggested is, as far as my understanding goes, perfectly legal.

[rth_discos]

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.


That's tax evasion then. HMRC takes a very dim view of trying to avoid the vat threshold by "splitting up" the company.

All seems fine until they discover, and back date the VAT that should have been owed.


But what I have suggested is, as far as my understanding goes, perfectly legal.

Possibly - I don't know for sure, but still seems like tax evasion to me.

However, if the business were to run into financial difficulties, you could be accused of wrongful trading because you were selling assets at less than market value, and therefore become personally liable for the outstanding debts.

[Benny Smyth]

Possibly - I don't know for sure, but still seems like tax evasion to me.

However, if the business were to run into financial difficulties, you could be accused of wrongful trading because you were selling assets at less than market value, and therefore become personally liable for the outstanding debts.

You cannot be held personally liable for a LTD company's debts.

[rth_discos]

You cannot be held personally liable for a LTD company's debts.

Not strictly true.

As a director of a company you have duties and responsibilities, as required by legal regulations. If you fail to uphold these responsibilities you could be accused of wrongful trading and held personally liable for the repayment of certain company debts.

Certain conditions can lead to a penalty of up to 7 years in prison, as well as personal liability for company debts.

[Pe7e]

You cannot be held personally liable for a LTD company's debts.

Oh yes you can, that used to be the case but the law's been changed and these days the veil of limited liability can be lifted if it can be shown the directors of the company have acted fraudulently or in an improper manner. Their creditors can them come after them personally, for any assets they may own, including houses, cars, investments etc. The directors can also be disqualified from holding directorships in other companies for a period of time. That legalisation has been in force for many years now to combat the 'long firm' scams common in the 60's 70's.


But what I have suggested is, as far as my understanding goes, perfectly legal.

I can assure it is certainly not legal, and would land you in hot water if discovered. The odds are you would probably get away with it, but if the company went bust and was put into the hands of the official receiver it would be a different matter altogether if he decided to investigate it.

[mattydj50]

Heavy stuff!!

Now, apart from one or two exceptions, as my sole customer is a Corporate, you would think it would make sense for me to register for VAT as all of my invoices were being paid by a VAT resistered business who would be able to reclaim the VAT.

The example goes: Currently I charge them £200. They charge their customer (normally a member of the public as it is for a wedding/birthday party etc) said £200 but have to add on the 20% VAT, making the price to the cistomer £240. They may well add on their mark up (including VAT) making the final fee more than that.

If I were to register for VAT, I would then have to invoice them for £240 inclusive of VAT. £200 goes into my purse and £40 I post of to that nice Mr Osbourne. SO I still end up with £200 as now but a mountain of extra paperwork.

The downside would be, as has been said, if my customers were general public consumers themselves who could not reclaim the VAT, who would be hit with an instant 20% rise in the prices I was charging (or I would have to take a 16.67% cut in earnings). These only amount to two or three a year, so its not really relevant to me.

Where of course it would save me money is that every business purchase I make I would be able to reclaim the 20% VAT from that purchase. Given that, for all but a very small amount of items, everything carries 20% VAT, expenditure would reduce by 16.66%. But again, I have an extra level of paperwork and headaches to contend with.

I did look at this several years ago and decided that the benefit did not outweigh the extra work and hassle involved. During my illness last year, I have another review and came to the same decision. One extra factor was that all of the DJs covering me , whether solo or from the agency, none of them were VAT registered. So I decided keep the Status Quo (other rock bands are available).

[scott23]

Thanks so much for all the reply s. :)

I have decided to put it on hold for now LOL .. I am not a LTD company btw! I was mostly thinking the benefits could have been the fact that i am investing more in the P.A hire side of the business- ie going to be purchasing loads of gear over the next few years and with the possibility of gaining 20% back on those purchases was what was enticing me to VAT reg.

I had a meeting with a friend last night who runs a very successful club events night, record label and merchandise business. He was telling me the story of his brother who had a visit from the VAT man and it was not pretty. They took all computers, mobile phones closed his business for a day and even read all his private mail. Lucky he was innocent of any wrong doings. He also mentioned he had just recently paid 600 quid in vat for a DJ he hired for one of his big nights so was tempted to go down the VAT route. But his brother said run a mile! its the worst thing he has done for his business.

As most folk have said here the benefits don't out weigh the extra work involved. Maybe in the future but for now no. You can claim up to 4 years of back paid VAT so maybe in 4 years time lol

[Solitaire Events Ltd]

My advice?

Go and speak to an accountant.

They will give you professional advice.

There is way too much rubbish in this thread that people actually aren't sure about as they are DJs and not accountants.

Speak to the people that know.

[mattydj50]

My advice?

Go and speak to an accountant.

They will give you professional advice.

There is way too much rubbish in this thread that people actually aren't sure about as they are DJs and not accountants.

Speak to the people that know.


I'm unique then as I am a DJ who qualified as an accountant.

[yourdj]

My advice?

Go and speak to an accountant.

They will give you professional advice.

There is way too much rubbish in this thread that people actually aren't sure about as they are DJs and not accountants.

Speak to the people that know.

:agree:

i would only go LTD if I hit the threshold.
Might be worth considering if you did only corporate work or dealt with hotels etc.

Totally not for private clients. Thats my opinion anyway.

[rth_discos]

:agree:

i would only go LTD if I hit the threshold.


You mean VAT?

[mattydj50]

You mean VAT?

LTD = Limited Company. If you hit the VAT threshhold (currently a VAT taxable turnover of £81,000), you don't have any choice anyway.

[DeckstarDeluxe]

My advice?

Go and speak to an accountant.

They will give you professional advice.

There is way too much rubbish in this thread that people actually aren't sure about as they are DJs and not accountants.

Speak to the people that know.

+1. Considering the numbers we're talking about here....

[DazzyD]

My advice?

Go and speak to an accountant.

They will give you professional advice.

There is way too much rubbish in this thread that people actually aren't sure about as they are DJs and not accountants.

Speak to the people that know.

What great advice! I would take that advice! :tiptoe:


...

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.

[rth_discos]

LTD = Limited Company. If you hit the VAT threshhold (currently a VAT taxable turnover of £81,000), you don't have any choice anyway.

Totally separate things.

You can be VAT registered whether you're a limited company or not. And you can be VAT registered even if you have a turnover under £81,000 - just at that point, it's compulsory.

Equally, you can register as a limited company at any turnover - and there's no compulsory point where you need to transition from sole trader to limited company.

[rth_discos]

My advice?

Go and speak to an accountant.

They will give you professional advice.

There is way too much rubbish in this thread that people actually aren't sure about as they are DJs and not accountants.

Speak to the people that know.

I'd add to this - speak to 2 or 3 accountants.

You'd be amazed at how advice from accountants can vary. So speak to a few and get a feel for what they suggest and what you feel works best for you.

[Excalibur]

I'm unique then as I am a DJ who qualified as an accountant.

Altogether now:
" Oh no you're not"!
An ex colleague/employer of mine combined the two roles for many years. :)

[Pe7e]

I thought our very own new member 'casual77' was also an accountant.