would I be money laundering?
Discussion
I've been self employed for 20 years or more and have been trying to deregister with VAT. As a bathroom installer, it is easy to turn over £100k annually just with the supplies. Generally I only make a tiny profit on the supplies as I use this as a carrot to dangle just to get the work. Consequently I could probably drop below the VAT threshold if I didn't supply, however supplying at virtually cost really does keep me and 3 others working virtually all year around, so is very important.
Recently, talking to one of my suppliers, they suggested I continued to supply but let my customers pay directly through my account. This would leave a small profit with the supplier, in my account. I could then purchase plumbing items with the credit. This means none of the profit would be declared, but at the same time I would not be putting receipts through my accounts either. This would put my turn over right down, but potentially my profit up as the plumbing items would not be coming off the job. The question is, would I be breaking the law in one form or another? My accountant doesn't seem to think it would be a problem but I'm uneasy. I run my business absolutely above board but the VAT on labour for the public is suicide so I'd like to find a solution. Running a supply only business along side would be an idea, but I fear the running costs (accountancy etc)would negate the business financially. Any thoughts?
Recently, talking to one of my suppliers, they suggested I continued to supply but let my customers pay directly through my account. This would leave a small profit with the supplier, in my account. I could then purchase plumbing items with the credit. This means none of the profit would be declared, but at the same time I would not be putting receipts through my accounts either. This would put my turn over right down, but potentially my profit up as the plumbing items would not be coming off the job. The question is, would I be breaking the law in one form or another? My accountant doesn't seem to think it would be a problem but I'm uneasy. I run my business absolutely above board but the VAT on labour for the public is suicide so I'd like to find a solution. Running a supply only business along side would be an idea, but I fear the running costs (accountancy etc)would negate the business financially. Any thoughts?
You would be tax evading and committing fraud.
If you are taking money from your customers in order to buy the materials for the projects that you are going to do for them so that you can obtain the trade discounts that are available to YOU from those suppliers, then it is YOU who is buying the materials, not the customers.
Therefore the money you have had in from the customer to cover the cost of materials is YOUR money and therefore should be included as part of your sales income for determining VAT thresholds. It does not matter if there is a good, bad or indifferent profit margin built into these transactions. VAT is a turnover based tax.
If you get the customers to buy the materials directly, then your business turnover would be genuinely reduced and, if you do drop below the VAT threshold, then you could de-register without any problems.
If you are taking money from your customers in order to buy the materials for the projects that you are going to do for them so that you can obtain the trade discounts that are available to YOU from those suppliers, then it is YOU who is buying the materials, not the customers.
Therefore the money you have had in from the customer to cover the cost of materials is YOUR money and therefore should be included as part of your sales income for determining VAT thresholds. It does not matter if there is a good, bad or indifferent profit margin built into these transactions. VAT is a turnover based tax.
If you get the customers to buy the materials directly, then your business turnover would be genuinely reduced and, if you do drop below the VAT threshold, then you could de-register without any problems.
Watching this one with some interest.
Oli.
Eric Mc said:
If you get the customers to buy the materials directly, then your business turnover would be genuinely reduced and, if you do drop below the VAT threshold, then you could de-register without any problems.
From reading the post, this is what I think is being suggested. Oli.
For complete transparency, why not get your customers to buy direct from the supplier on your account, and then invoice the supplier for the difference between your cost and what the customer is being charged. You could treat it as a commission or a retroactive discount. Then your supplier can invoice you for the supplementary items.
Having said all that, if the business is keeping you and 4 others busy nearly all year round, surely you must be over the VAT threshold (£79k this year)purely on labour. That's an average of £16k pa per person.
Having said all that, if the business is keeping you and 4 others busy nearly all year round, surely you must be over the VAT threshold (£79k this year)purely on labour. That's an average of £16k pa per person.
zcacogp said:
Watching this one with some interest.
Oli.
He seemed to be suggesting that he would actually take the money from his customers and then buy the materials for them - so that he could obtain the trade discount from his suppliers. This would mean passing customers' money through his bank account as he wants to "fool" the supplier into thinking that it is he who is buying the materials, not his customers.Eric Mc said:
If you get the customers to buy the materials directly, then your business turnover would be genuinely reduced and, if you do drop below the VAT threshold, then you could de-register without any problems.
From reading the post, this is what I think is being suggested. Oli.
And, as I said, once customer money starts passing through his business bank account. HMRC would consider this to be part of his turnover and would expect him to use this money when calculating turnover levels for VAT registration or de-registration purposes.
HMRC DOES have a provision where income received to cover "disbursements" paid on behalf of customers can be excluded from turnover calculations but it is a fine line between treating income from a customer as being in respect of a disbursement and income being genuine income.
Generally, disbursements are only allowed if they are of a relatively minor nature and do not make up a substantial part of the income being received.
Gotcha, but I was going by the phrase he used which was "talking to one of my suppliers, they suggested I continued to supply but let my customers pay directly through my account." I guess it comes down to what 'my account' means; whether it means his bank account or whether it means his trade account with his suppliers, and I am guessing the latter (which would seem to make it OK, from your explanation.)
I'm sure the OP will be back soon to clarify though!
Oli.
I'm sure the OP will be back soon to clarify though!
Oli.
Bluequay said:
Could he not just setup a 2nd company to handle the supply of goods, and just do the fitting through the existing company. 2 separate contracts with each client, one for goods, and one for services, both under the VAT threshold.
Look up the VAT rules on "disaggregation".Eric Mc said:
Bluequay said:
Could he not just setup a 2nd company to handle the supply of goods, and just do the fitting through the existing company. 2 separate contracts with each client, one for goods, and one for services, both under the VAT threshold.
Look up the VAT rules on "disaggregation".I'm back! I was in a rush this morning and perhaps didn't word the post too well.
I did in fact mean 'trade account' and not my bank account. So I would offer a discount to my customer if they wanted to pay the supplier directly through my trade account and not through my bank. A small profit would be made and held in the trade account. This would then be used to purchase plumbing items for the customer's bathroom refurb. So in effect, the customer is buying their own sanitary ware and some of the plumbing materials to fit it. They would simply benefit from my discounts and I would process less money.
My original estimate for the works would have included the cost of plumbing materials. This wouldn't change as I'd have still had to purchase them whether it came from my trade account 'reserve' or from my bank. The net result is the same except I would not process it and I would not putthe receipts through my annual accounts.
I'd be concerned I'd fall foul of the law regarding disaggregation as I think it would be glaringly obvious why I had split the business.
I did in fact mean 'trade account' and not my bank account. So I would offer a discount to my customer if they wanted to pay the supplier directly through my trade account and not through my bank. A small profit would be made and held in the trade account. This would then be used to purchase plumbing items for the customer's bathroom refurb. So in effect, the customer is buying their own sanitary ware and some of the plumbing materials to fit it. They would simply benefit from my discounts and I would process less money.
My original estimate for the works would have included the cost of plumbing materials. This wouldn't change as I'd have still had to purchase them whether it came from my trade account 'reserve' or from my bank. The net result is the same except I would not process it and I would not putthe receipts through my annual accounts.
I'd be concerned I'd fall foul of the law regarding disaggregation as I think it would be glaringly obvious why I had split the business.
putting the financial/ vat/ turnover stuff to the side for a minute, how would this effect the warranty/ making good defects situation for a customer?
effectively they have bought the materials and you are supplying the labour to install. if any issues with the materials is it up to the individual to contact the supplier with any defects? then they would need to have you (possibly at additional cost) come back to supply labour to fix a problem. the original problem wasnt yours, it was defective parts, so why would you supply free labour to fix problems that are not yours?
for example: toilet sistern develops a crack, instead of customer phoning up 'ABC Plumbing Ltd' and saying the toilet you installed 1 month ago is defective can you come and check it out.
customer then has to phone 'supplier abc' and say there was an issue with the sistern i bought from you, they come out and go yeah its a fault with it, heres a new sistern. customer then asks 'ABC plumbing ltd' to come and install the new sistern and ask to be paid, they didnt damage the sistern so they should be paid for supplying labour for a new sistern install.
effectively they have bought the materials and you are supplying the labour to install. if any issues with the materials is it up to the individual to contact the supplier with any defects? then they would need to have you (possibly at additional cost) come back to supply labour to fix a problem. the original problem wasnt yours, it was defective parts, so why would you supply free labour to fix problems that are not yours?
for example: toilet sistern develops a crack, instead of customer phoning up 'ABC Plumbing Ltd' and saying the toilet you installed 1 month ago is defective can you come and check it out.
customer then has to phone 'supplier abc' and say there was an issue with the sistern i bought from you, they come out and go yeah its a fault with it, heres a new sistern. customer then asks 'ABC plumbing ltd' to come and install the new sistern and ask to be paid, they didnt damage the sistern so they should be paid for supplying labour for a new sistern install.
bernhund said:
I'm back! I was in a rush this morning and perhaps didn't word the post too well.
I did in fact mean 'trade account' and not my bank account. So I would offer a discount to my customer if they wanted to pay the supplier directly through my trade account and not through my bank. A small profit would be made and held in the trade account. This would then be used to purchase plumbing items for the customer's bathroom refurb. So in effect, the customer is buying their own sanitary ware and some of the plumbing materials to fit it. They would simply benefit from my discounts and I would process less money.
My original estimate for the works would have included the cost of plumbing materials. This wouldn't change as I'd have still had to purchase them whether it came from my trade account 'reserve' or from my bank. The net result is the same except I would not process it and I would not putthe receipts through my annual accounts.
I'd be concerned I'd fall foul of the law regarding disaggregation as I think it would be glaringly obvious why I had split the business.
You would have to absolutely crystal clear in that your official (especially printed or e-mailed) quotes EXCLUDED all mention of materials.I did in fact mean 'trade account' and not my bank account. So I would offer a discount to my customer if they wanted to pay the supplier directly through my trade account and not through my bank. A small profit would be made and held in the trade account. This would then be used to purchase plumbing items for the customer's bathroom refurb. So in effect, the customer is buying their own sanitary ware and some of the plumbing materials to fit it. They would simply benefit from my discounts and I would process less money.
My original estimate for the works would have included the cost of plumbing materials. This wouldn't change as I'd have still had to purchase them whether it came from my trade account 'reserve' or from my bank. The net result is the same except I would not process it and I would not putthe receipts through my annual accounts.
I'd be concerned I'd fall foul of the law regarding disaggregation as I think it would be glaringly obvious why I had split the business.
If you quote them for a job and you INCLUDE the coast of materials in that quote you are indicating that it is YOU who is negotiating and buying the materials - even if they pay the supplier directly.
How cash changes hands is not the be all and end all of a transaction. It is who is forming the contract to buy.
Eric Mc said:
You would have to absolutely crystal clear in that your official (especially printed or e-mailed) quotes EXCLUDED all mention of materials.
If you quote them for a job and you INCLUDE the coast of materials in that quote you are indicating that it is YOU who is negotiating and buying the materials - even if they pay the supplier directly.
How cash changes hands is not the be all and end all of a transaction. It is who is forming the contract to buy.
No, I think your initial reaction was correct.If you quote them for a job and you INCLUDE the coast of materials in that quote you are indicating that it is YOU who is negotiating and buying the materials - even if they pay the supplier directly.
How cash changes hands is not the be all and end all of a transaction. It is who is forming the contract to buy.
I believe the OP is intending on purchasing a £10 widget on his trade account, then telling his customer to pay £11 to the supplier (but issuing no invoice for it), which the supplier will credit to his trade account leaving him with £1 profit.
malks222 said:
putting the financial/ vat/ turnover stuff to the side for a minute, how would this effect the warranty/ making good defects situation for a customer?
effectively they have bought the materials and you are supplying the labour to install. if any issues with the materials is it up to the individual to contact the supplier with any defects? then they would need to have you (possibly at additional cost) come back to supply labour to fix a problem. the original problem wasnt yours, it was defective parts, so why would you supply free labour to fix problems that are not yours?
for example: toilet sistern develops a crack, instead of customer phoning up 'ABC Plumbing Ltd' and saying the toilet you installed 1 month ago is defective can you come and check it out.
customer then has to phone 'supplier abc' and say there was an issue with the sistern i bought from you, they come out and go yeah its a fault with it, heres a new sistern. customer then asks 'ABC plumbing ltd' to come and install the new sistern and ask to be paid, they didnt damage the sistern so they should be paid for supplying labour for a new sistern install.
In my game this is irrelevant as the manufacturers and suppliers constantly wriggle from warranties. I run my business in a different way to them. Old school. If there's a problem, I deal with it because they are my customer and the problem starts with me. I sort it out and then pursue suppliers/manufacturers etc. for refunds where possible. If I pursue this method of my customer paying directly, the sale is through my 'trade account' and therefore I am the customer even if someone else has coughed up.effectively they have bought the materials and you are supplying the labour to install. if any issues with the materials is it up to the individual to contact the supplier with any defects? then they would need to have you (possibly at additional cost) come back to supply labour to fix a problem. the original problem wasnt yours, it was defective parts, so why would you supply free labour to fix problems that are not yours?
for example: toilet sistern develops a crack, instead of customer phoning up 'ABC Plumbing Ltd' and saying the toilet you installed 1 month ago is defective can you come and check it out.
customer then has to phone 'supplier abc' and say there was an issue with the sistern i bought from you, they come out and go yeah its a fault with it, heres a new sistern. customer then asks 'ABC plumbing ltd' to come and install the new sistern and ask to be paid, they didnt damage the sistern so they should be paid for supplying labour for a new sistern install.
PurpleMoonlight said:
Eric Mc said:
You would have to absolutely crystal clear in that your official (especially printed or e-mailed) quotes EXCLUDED all mention of materials.
If you quote them for a job and you INCLUDE the coast of materials in that quote you are indicating that it is YOU who is negotiating and buying the materials - even if they pay the supplier directly.
How cash changes hands is not the be all and end all of a transaction. It is who is forming the contract to buy.
No, I think your initial reaction was correct.If you quote them for a job and you INCLUDE the coast of materials in that quote you are indicating that it is YOU who is negotiating and buying the materials - even if they pay the supplier directly.
How cash changes hands is not the be all and end all of a transaction. It is who is forming the contract to buy.
I believe the OP is intending on purchasing a £10 widget on his trade account, then telling his customer to pay £11 to the supplier (but issuing no invoice for it), which the supplier will credit to his trade account leaving him with £1 profit.
So the order arrives and I would ask the customer to call up my supplier and pay for the goods. 5% credit would then be left in the trade account. This would not be cash and I would not be able to get cash back in any event. It could only be used for goods.
As I would be using these goods for business and not home, and I'm not claiming the purchases for my annual accounts, I can't see that I'd actually be profiting from the transaction.
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