A Bit of Market Research - VAT Threshold - Would this service be of interest? - Forum

Hello, I'm a newbie to the forum looking to get your views on whether my new business idea would be of interest to those landscapers who would like to stay under the VAT threshold but be able to offer their clients easy and professional materials supply (and make some commission on materials).

I would welcome your feedback, even if you are VAT registered, as all comments would be useful to ascertain whether this idea would work.

I work with my wife, who is a garden designer and our son, who is a landscaper. I quantify the materials and project manage the build, which includes sourcing and supplying materials. Our son is a skilled landscaper who just charges his and his team's labour only and is not VAT registered. I charge the clients for materials separately and I am VAT registered.

The classic VAT threshold dilemma:

On the one hand, you are keen to stay under the VAT threshold to remain competitive and avoid extra admin and accountancy.

On the other hand, how do you deal with materials supplies and keep your turnover down at the same time (not to mention dealing with suppliers and payments/cashflow, etc)?

You could ask the client to order their own materials but this could come across as unprofessional, difficult to coordinate and a bit of a pain for the client, to say the least.

The Potential Solution:

I propose to offer a materials quoting and supply service (Materials World) on behalf of landscapers. Here's how it would work:

1) You tell me what materials you need for each project

2) I quote the client directly and, if they accept the quote, arrange deliveries as required by you and then invoice the client

3) I collect payments

4) At the end of each project, I pay you 5% commission of the net (ex-VAT) amount

This gives you a professional solution to the problem, helps keep you under the VAT threshold with some revenue in return.

I don't stock materials, I would buy from merchants and suppliers as I do for my our own business, arranging deliveries as required by you. I could also source special products, where required.

Would this idea a) be of interest and b) would it work in practice? All comments welcome, thanks...

John

As you are obviously related to your son, you might want to look into 'artificial separation'

Question on AccountingWeb: http://www.accountingweb.co.uk/anyanswers/question/creating-company...

I have a potential new client who is a self employed landscaper. They are doing the right thing and monitoring how close they are getting to the compulsory registration threshold. However, now that they are getting there he is thinking of ways to legitimately avoid having to register.

I've suggested that he could have his clients buy their own materials, and he could just supply design and labour work which would take the value of his VATable supplies well below the threshold. He doesn't like this as many clients just won't do that.

It's also been suggested to me elsewhere that if he starts a company, and that company will be a materials reseller that will buy the materials at cost from suppliers and sell it to his customers, and perhaps to other gardeners and landscapers.

He would remain self employed and he would supply design and labouring services as a landscaper.

Would this be two different business for VAT purposes so as to avoid amalgamation when working out the threshold?

Once of the answers: http://www.accountingweb.co.uk/anyanswers/question/creating-company...

artificial separation

Summerjosh | Mon, 09/02/2015 - 16:37 | Permalink
I would say this could be an example of artificial separation, these companies can be linked in one way or another, so HMRC may not like that approach. . . There are things of course which can be done to mitigate risk, especially when you mentioned selling to other landscapers - However there still is a risk to be aware of, and you would need to work with the client to route out the risks when performing due diligence around their trading styles.

Replies

Colin Hunt October 16, 2015 at 11:22pm

Goodness me, it's a bit convoluted! My first thought is how does this effect my customer? Surely they will be paying more for materials than I would charge, after your percentage is added on.

From my experience, if I want materials I go and look at them first, pick what I want, load up, take them away or organise delivery there and then.

I think that the VAT dilemma shouldn't be a dilemma at all, if you're turnover is approaching £75k, then just join the 'VAT club'. Too many think it adds 20% to the bill, when in fact the average is 8 - 10% on a decent hard landscaping project, which are around 50/50 materials/labour.
PRO

James Brett October 17, 2015 at 7:34am

Well most of my customers want one person to pay. The don't want the hassle of paying different people for the same project.

Similar to Colin, I go to look at materials and would either collect or arrange delivery there and then. How would you get the same discount from the same suppliers that we use??

My other concern would be that if you were purchasing materials for multiple jobs for multiple people and have to delay an order due to lack of funds. This then impacts upon us who maybe delayed. What happens when an order is wrong? It seems to complicated if the customer changes their mind and we need small extra amounts of materials as we either need to purchase or we contact you and have to wait causing further delays

VAT? Well if I get to that point then I will have to register and so be it!
PRO

Andrew Watts October 17, 2015 at 8:56am

I imagine the conversation with the customer being a bit tricky. As others say, VAT can potentially add only 10% in reality, then perhaps a 5% markup on materials (from comission), giving only a 5% saving to the customer. Hard to explain and a small potential benefit. Many customers will think it's a bit convoluted, some may think great, but others think it's a bit dodgy.

Overall, I wouldn't consider it viable or attactive.
- PRO
  
  Nick @ NM Garden Services Ltd > Andrew Watts October 17, 2015 at 10:08am
  
  Most customers hate Vat and and would rather an individual saw the benefit rather than the tax man!....
  
  We have been VAT registered for years and if customers try to negotiate their way around it then they are not the right customers for us!
Edward Wright October 28, 2015 at 5:25am

Is this even Legal? If the sole purpose of this is to AVOID paying TAX, then surely this is TAX AVOIDANCE?
- PRO
  
  James Brett > Edward Wright October 28, 2015 at 7:13am
  
  This is only to keep your turnover down. The other person would still be VAT registered. Customer pays two people instead of the one!
PRO

Phil Voice October 28, 2015 at 8:00am

John

As you are obviously related to your son, you might want to look into 'artificial separation'

Question on AccountingWeb: http://www.accountingweb.co.uk/anyanswers/question/creating-company...

I have a potential new client who is a self employed landscaper. They are doing the right thing and monitoring how close they are getting to the compulsory registration threshold. However, now that they are getting there he is thinking of ways to legitimately avoid having to register.

I've suggested that he could have his clients buy their own materials, and he could just supply design and labour work which would take the value of his VATable supplies well below the threshold. He doesn't like this as many clients just won't do that.

It's also been suggested to me elsewhere that if he starts a company, and that company will be a materials reseller that will buy the materials at cost from suppliers and sell it to his customers, and perhaps to other gardeners and landscapers.

He would remain self employed and he would supply design and labouring services as a landscaper.

Would this be two different business for VAT purposes so as to avoid amalgamation when working out the threshold?

Once of the answers: http://www.accountingweb.co.uk/anyanswers/question/creating-company...

artificial separation

Summerjosh | Mon, 09/02/2015 - 16:37 | Permalink
I would say this could be an example of artificial separation, these companies can be linked in one way or another, so HMRC may not like that approach. . . There are things of course which can be done to mitigate risk, especially when you mentioned selling to other landscapers - However there still is a risk to be aware of, and you would need to work with the client to route out the risks when performing due diligence around their trading styles.
- Graeme @ BGS > Phil Voice October 28, 2015 at 8:23am
  
  I think it is a fine line but if the material supply company is being run as a business in it's own right and can prove that it is at least making a small profit and in particular having other customers then no it isn't artificial separation. Using same office, no separate insurance policies, very close ties to another business and no other clients then HMRC would take a different view.
  
  Personally I can see this service being of interest to some companies and even householders but as others have stated the hassle of a change of order or other requirements does throw a spanner in the works.
  - Freshscaped > Graeme @ BGS October 28, 2015 at 8:37am
    
    As do loss of local supplies, logistics, costs and a host of other questions throw spanners in the works.
    
    There are some very good national (UK-wide delivery) suppliers out there bust most of us prefer to use our own, local suppliers who we can get to know and they can help by learning how we work.
    
    All that is inevitably sacrificed when a centralised system is introduced and there need to be compensting factors. I percieve none with this idea.