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The thorny issue of VAT

I am looking into taking on more commersial contracts and, I know this may have already been covered, I need some advice on voluntary VAT.As far as I can see I have three choices:1 stay as I am as domestic customers dont want to pay VAT.2 Split the business in two and register the commercial side for VAT.3 Keep the business whole and bite the bullet hoping not to annoy the domestic clients.I just cant make up my mind any help would be much appreciated.

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Replies

  • Dave the intention is not to avoid VAT as I do not qaulify as yet this was a voluntary registration for commercial customers as I beleive they would prefer to deal with a company that is registered although I may well be wrong which is why I am asking for advice.
  • PRO
    I voluntarily registered for VAT 20 months ago and have never looked back. I wanted to expand the business and I thought I would test the market as you can always de-register if below the threshold.

    Customers grumbled but everyone apart from one refused to pay extra. I just passed the blame staright onto HMRC for their higher bills saying my hand was tied as I wanted togrow the business!

    BTW if you do register, you can back-claim all capital items that you still own 3 years prior to VAT registration. I did this, got a £3k payout from my first quater, then purchased a new van and other capital items and got a £2k payout the following quater. This is completely legal and supported by documentation supplied by HMRC and can be done even if you have already taken into account capital allowances on your self assessment.

    Good eh?
  • PRO
    Just a couple of points.

    Being VAT reg doesn't makes you any cheaper to commercial customers.

    Not all commercial companies are VAT reg for example those linked to the NHS.

    Only go VAT reg when your turnover reaches the required level or if you want to reclaim VAT back on a large purchase.

    For small businesses look at the 10% scheme

    You can run two businesses with one being VAT reg but you must be very careful and to be honest it probably isn't worth the hassle.

    Most clients would accept the price increase but yes there will be some who may object.

    Commercial clients do look upon you more as a "real business" if VAT reg but if you are not at the level of turn over to warrent going VAT reg you probably wouldn't be looking at these larger contracts anyway.

    Being VAT reg is a pain and does incur a little more admin and accountancy fees.

    Best bet is to speak to your accountant.
  • PRO
    I agree that if you have a good software package (MYOB, Sage or Quickbooks to name a few) it is fairly simple to do all your accounting and VAT returns. However if you are a sole trader / self employed you can be more relaxed about your accounting hence making that change can be a pain for some.

    Most accountancy firms will charge a slight premium if you are LTD and or VAT reg. however I have seen some companies offering a flat rate fee but personally I prefer a more one on one relationship with my accountant and the indepth service they provide.
  • I do all my Vat accounts myself and was spending a day every 3 months doing the accounts.

    I've just joined the flat rate scheme where I pay 9% on all income, it now takes me about half an hour to do the accounts. It works out I am paying about the same as the original scheme. You can still claim vat back on single purchases over £2000.
    Saved me a lot of time, can see it not being suitable to everyone though.
  • Thank you everyone for all your advice and personal experiences. I think I will stay as I am for now and see how the next year goes.
  • Hi Nick, With the flat rate scheme can you claim back vat on any purchase over £2000 including plants? How dod you hear about the thanks Jon

    Nick Hill said:
    I do all my Vat accounts myself and was spending a day every 3 months doing the accounts.

    I've just joined the flat rate scheme where I pay 9% on all income, it now takes me about half an hour to do the accounts. It works out I am paying about the same as the original scheme. You can still claim vat back on single purchases over £2000.
    Saved me a lot of time, can see it not being suitable to everyone though.
  • Ditto Grahams advice if you do become VAT registered get a good accounts package, we used to use Excel but made numerous mistakes and ended up paying both over and under on the VAT. The whole thing drove me mad and took up so much time now we use Quickbooks Pro and life is so much simpler, I wish our accountant had not advised us to use Excel (accountants understand tax so they just assume that everybody else does – I still look at PLF, CFF…and they mean nothing (perhaps I’m thick?).
  • the flat rate is interesting, as you charge your commercial clients vat at 17.5% whilst paying 9% to the vat man, you get to keep the 8.5% left over, so you make more money if your work is mainly labour based then the flat rate is the way to go.
    and yes you claim the vat back on purchases over £2000
  • PRO
    Yes, but if you turn over more than £115k (I think) then you have to go off of the flat rate scheme and back onto the standard VAT schemes.

    -Nick
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