VAT Conundrum...

Author
Discussion

nick_j007

Original Poster:

1,598 posts

201 months

Monday 28th July 2014
quotequote all
Hi guys. I need to broaden my thinking as I seem to have hit a ceiling on my earnings as a dog behaviourist to the point that I will need to go VAT registered if I earn any more.

The problem with this is that most of my clients are private individuals and a 20% increase could come as a blow to my new client numbers and I'd have to work quite a bit harder to make that up, though price is a funny thing in this industry as people will pay what they perceive to be good value to get a problem sorted.

My accountant is telling me to earn less which on a business level is completely against my nature, as I've worked my butt off over 10 years to get to this point, so it's a nice problem in some respects, but to stop pushing for fresh work and to come off the accelerator is just not me.

Having said that I also seem to be at a point where I'm working flat out and unable to take on much more work, workload wise. I'm fully booked until September.

I also work as a dog expert witness whereby VAT would be chargeable on the invoice and I may well shift over to more of this work in time and to consider doing less behaviour work, but that would be a long term switch over.

I respect my accountant and whilst having a keen business mind, let others do the accounting.

So, any thoughts? I can't be alone in this situation. I have always set the sky as the limit and my accountant is setting the VAT threshold (81k IIRC) as my limit!

Thanks.

Nick

mikef

4,826 posts

250 months

Monday 28th July 2014
quotequote all
I'm guessing that you have relatively few VATable supplies in that line of work? May be wrong on that.

If so and you go on the flat rate scheme (goodness knows what the categorisation is for pooch botherers) you will save around 7% on your VAT returns and may not be obliged to pass the full 20% on.

If you have a good reputation, accept that you may lose some valued clients when you explain that you need to introduce VAT but you will quickly build up more.

PugwasHDJ80

7,522 posts

220 months

Monday 28th July 2014
quotequote all
You don't have any choices. Go even one pound over the limit and you are landed with a fifteen grand bill.

In my first business I kept closing the shop for week so to stay under the limit until I KNEW that those weeks I would do well over the threshold.

Eric Mc

121,779 posts

264 months

Monday 28th July 2014
quotequote all
Shows the iniquitous effect of thresholds. People doing tehir best to STOP their businesses from growing.

nick_j007

Original Poster:

1,598 posts

201 months

Monday 28th July 2014
quotequote all
mikef said:
I'm guessing that you have relatively few VATable supplies in that line of work? May be wrong on that.

If so and you go on the flat rate scheme (goodness knows what the categorisation is for pooch botherers) you will save around 7% on your VAT returns and may not be obliged to pass the full 20% on.

If you have a good reputation, accept that you may lose some valued clients when you explain that you need to introduce but you will quickly build up more.
Thank you for that. As you rightly state, very few VAT able expenses apart from a few supplies here and there. My car/fuel is the biggest overhead.

When presenting prices (if I were VAT registered) am I obliged to say I am VAT registered and the cost includes VAT? I think I will need to offer an invoice anyway so that will set it all out.

The business is still growing with a good reputation and a very stable base, although I tend to work on new clients rather than a lot of repeat business (correct the issue and move on, and repeat).

I'm inclined to think s*d it, go VAT registered and step it up again from there, but then I am already at full capacity on a workload level. Hmmmm.

nick_j007

Original Poster:

1,598 posts

201 months

Monday 28th July 2014
quotequote all
Eric Mc said:
Shows the iniquitous effect of thresholds. People doing their best to STOP their businesses from growing.
Exactly. Oh the irony! It hurts I have to admit.

mikef

4,826 posts

250 months

Monday 28th July 2014
quotequote all
Nick - yes, you need to provide VAT invoices (you may be surprised how many people are running guard dogs on their company and claim against tax, even when the dogs are not not exactly Alsatians)

nick_j007

Original Poster:

1,598 posts

201 months

Monday 28th July 2014
quotequote all
mikef said:
Nick - yes, you need to provide VAT invoices (you may be surprised how many people are running guard dogs on their company and claim against tax, even when the dogs are not not exactly Alsatians)
Guard dogs...I see, thanks !

nick_j007

Original Poster:

1,598 posts

201 months

Monday 28th July 2014
quotequote all
So it would seem that I really am a bit stuck at this limit and it's as real as the accountant is saying. I need to get my head around it.

Thanks all.

Nick

Simpo Two

85,149 posts

264 months

Monday 28th July 2014
quotequote all
Well if the threshold is around £75K and it's all fees, that's not a bad income. Simply cap it at that and take the extra time off as holiday so you can spend some smile

mikef

4,826 posts

250 months

Monday 28th July 2014
quotequote all
I was going to say that. £80K is great going for any individual professional. Dog Expert Witness: "yes m'lud that definitely looks like a dog, where do I send the invoice?"

nick_j007

Original Poster:

1,598 posts

201 months

Monday 28th July 2014
quotequote all
Simpo Two said:
Well if the threshold is around £75K and it's all fees, that's not a bad income. Simply cap it at that and take the extra time off as holiday so you can spend some smile
It's a mindset thing for me. But I agree with you smile

nick_j007

Original Poster:

1,598 posts

201 months

Monday 28th July 2014
quotequote all
mikef said:
I was going to say that. £80K is great going for any individual professional. Dog Expert Witness: "yes m'lud that definitely looks like a dog, where do I send the invoice?"
Oh, have you been in court watching me? Uncannily close to the truth!

I assess 'dangerous dogs' for the courts, dogs that have bitten usually. Most recently two dogs that had bitten two police officers. Interesting work.

Good night all and thank you for the input.

Nick

Eric Mc

121,779 posts

264 months

Tuesday 29th July 2014
quotequote all
The registration threshold is now £81,000.

Boshly

2,776 posts

235 months

Tuesday 29th July 2014
quotequote all
mikef said:
I'm guessing that you have relatively few VATable supplies in that line of work? May be wrong on that.

If so and you go on the flat rate scheme (goodness knows what the categorisation is for pooch botherers) you will save around 7% on your VAT returns and may not be obliged to pass the full 20% on.

If you have a good reputation, accept that you may lose some valued clients when you explain that you need to introduce VAT but you will quickly build up more.
I'd be surprised if flat rate saves 7%. That's usually the perception but bear in mind the flat rate percentage is applied to your gross turnover not net; so 'saving' is not always what you think and definitely not the difference between vat rate and flat rate. HMRC don't just give money away don't you know smile

Also OP is not obliged to put his prices up to his clients (some or all). He is obliged to provide a vat invoice I believe (correct Eric?) but he can simply still charge the same amount as a gross, and pay the vat element to HMRC. As such his earnings will drop a maximum of 16.66%.

Target therefore would be can you (OP) grow your business about 25% to make it worthwhile? If not maybe look at a completely different business you can do with that time (part time job? Again maybe Eric can confirm - I'm not an accountant) or extra holidays? smile

LaurasOtherHalf

21,429 posts

195 months

Tuesday 29th July 2014
quotequote all
nick_j007 said:
The business is still growing with a good reputation and a very stable base, although I tend to work on new clients rather than a lot of repeat business (correct the issue and move on, and repeat).
If you're working on mostly new clients, you're already ahead by not having a large existing customer database who will expect a certain product at a certain price.

Also, if you're doing a lot of public sector work I suspect they won't give a gig about the vat charging part-they'll just pay it.

Here's a thought though....

I've got a joiner who does some work for me, problem is he IS'NT vat registered. He charges essensially the going rate but I can't claim the 20% back via vat deductions-he doesn't get that much work from me! Some of your potential customers may think the same.

Point is, if you're running at capacity already you've got nothing to lose as what are the options (apart from cash)?

I'd give it a year & see how it goes, if it loses you 20% of turnover you're really only back at square one but with the added benifit of having 20% more time & potential to focus on growing the business

Eric Mc

121,779 posts

264 months

Tuesday 29th July 2014
quotequote all
Boshly said:
I'd be surprised if flat rate saves 7%. That's usually the perception but bear in mind the flat rate percentage is applied to your gross turnover not net; so 'saving' is not always what you think and definitely not the difference between vat rate and flat rate. HMRC don't just give money away don't you know smile

Also OP is not obliged to put his prices up to his clients (some or all). He is obliged to provide a vat invoice I believe (correct Eric?) but he can simply still charge the same amount as a gross, and pay the vat element to HMRC. As such his earnings will drop a maximum of 16.66%.

Target therefore would be can you (OP) grow your business about 25% to make it worthwhile? If not maybe look at a completely different business you can do with that time (part time job? Again maybe Eric can confirm - I'm not an accountant) or extra holidays? smile
Essentially correct.

Flat Rate might be worth considering although it has its pitfalls and does not simplify matters as much as people might think.

mikef

4,826 posts

250 months

Tuesday 29th July 2014
quotequote all
Boshly said:
mikef said:
I'm guessing that you have relatively few VATable supplies in that line of work? May be wrong on that.

If so and you go on the flat rate scheme (goodness knows what the categorisation is for pooch botherers) you will save around 7% on your VAT returns and may not be obliged to pass the full 20% on.

If you have a good reputation, accept that you may lose some valued clients when you explain that you need to introduce VAT but you will quickly build up more.
I'd be surprised if flat rate saves 7%. That's usually the perception but bear in mind the flat rate percentage is applied to your gross turnover not net; so 'saving' is not always what you think and definitely not the difference between vat rate and flat rate. HMRC don't just give money away don't you know smile
Right, it's around a couple of % of the total invoice amount, I didn't mean to imply otherwise.

essayer

9,011 posts

193 months

Tuesday 29th July 2014
quotequote all
As alluded to above you could register and have two rates - for private/non registered clients, you charge them the inclusive price, but for commercial or public sector work you just add VAT on top

I.e old rate £100/hr by way of example
New private rate: £83.33/hr + £16.67 VAT
New company rate: £100/hr + £20 VAT

Don't forget you can reclaim VAT, not just on an ongoing basis (mileage, say) but also for past six months services and a number of years of 'goods' (not sure how that would apply to you)

Simpo Two

85,149 posts

264 months

Tuesday 29th July 2014
quotequote all
essayer said:
As alluded to above you could register and have two rates - for private/non registered clients, you charge them the inclusive price, but for commercial or public sector work you just add VAT on top

I.e old rate £100/hr by way of example
New private rate: £83.33/hr + £16.67 VAT
New company rate: £100/hr + £20 VAT
He could, and it would keep his private customers happy, but he is then paying the VAT 'out of his own pocket', ie earning less.