Starting a second company to help with VAT/Tax ...
Discussion
Always good advice on the business forum so here goes..
My Ltd company offers a multi trade service. Around 70% of work is electrical and the rest Heating, Plastering etc etc.
I have usually have 2-4 guys working mostly full time, basically invoicing me weekly at this stage.
VAT is killing me and pricing me out of a lot of work. We mostly rewire houses. Lets say its a 5k rewire, Im 1k more expensive than a lot of my non VAT competitors. Giving that Im maybe only 1k Materials Im only claiming around £200 back per job in VAT. So its not good and Im basically collecting money for the VAT man and losing jobs I would have previously won, along the way.
So I have a plan and my question is , IS it worth the hassle and how can I approach it?
Ive spoke to my accountant previously about starting another company to focus on rewiring only and maybe trying to keep it under the threshold, thus avoiding charging customers VAT. This would be an electrical rewiring specialist company. He stressed that there should be no similarities in work type of both companies.
Id keep original the original VAT reg company which is currently named has "property solutions" in the title, so no reference to electrical.
How much of a headache will this be with paperwork ? Bank accounts, Invoices, staff (who do they work for?) etc etc.
Ive already started the ball rolling with websites. My original web site will be changed to suit "property solutions" and a new fresh website will be focused on electrical rewiring, each will have individual domains etc.
Both companies will have same theme and logo etc but different wording.
and...for example lets say I have a big project that is complete renovation....I could put the electrical work involved on that particular job down as part of the "renovation" and slip that work through the VAT company if Im close to the threshold with other company ?
Can this work or am I creating more hassle than its worth? IS it blatant tax avoidance ?
My Ltd company offers a multi trade service. Around 70% of work is electrical and the rest Heating, Plastering etc etc.
I have usually have 2-4 guys working mostly full time, basically invoicing me weekly at this stage.
VAT is killing me and pricing me out of a lot of work. We mostly rewire houses. Lets say its a 5k rewire, Im 1k more expensive than a lot of my non VAT competitors. Giving that Im maybe only 1k Materials Im only claiming around £200 back per job in VAT. So its not good and Im basically collecting money for the VAT man and losing jobs I would have previously won, along the way.
So I have a plan and my question is , IS it worth the hassle and how can I approach it?
Ive spoke to my accountant previously about starting another company to focus on rewiring only and maybe trying to keep it under the threshold, thus avoiding charging customers VAT. This would be an electrical rewiring specialist company. He stressed that there should be no similarities in work type of both companies.
Id keep original the original VAT reg company which is currently named has "property solutions" in the title, so no reference to electrical.
How much of a headache will this be with paperwork ? Bank accounts, Invoices, staff (who do they work for?) etc etc.
Ive already started the ball rolling with websites. My original web site will be changed to suit "property solutions" and a new fresh website will be focused on electrical rewiring, each will have individual domains etc.
Both companies will have same theme and logo etc but different wording.
and...for example lets say I have a big project that is complete renovation....I could put the electrical work involved on that particular job down as part of the "renovation" and slip that work through the VAT company if Im close to the threshold with other company ?
Can this work or am I creating more hassle than its worth? IS it blatant tax avoidance ?
Look up the rules on "Disaggregation". HMRC is very hot on businesses deliberately splitting their trade in an effort to keep one or both business under the compulsory VAT registration threshold.
Also, if you go ahead and create a second limited company (or even a second non corporate business), you will soon find that doubling the trading entities more than doubles the hassle and bureaucracy involved - as well as making it much harder to keep tabs on what each business is doing financially. I have seen far too many small businesses get into a hopelessly messy situation because they thought they would be clever and trade through two or more entities.
Also, if you do set up a second limited company, you had better read up on the Companies Act rules and Corporation Tax rules on "associated companies".
Also, if you go ahead and create a second limited company (or even a second non corporate business), you will soon find that doubling the trading entities more than doubles the hassle and bureaucracy involved - as well as making it much harder to keep tabs on what each business is doing financially. I have seen far too many small businesses get into a hopelessly messy situation because they thought they would be clever and trade through two or more entities.
Also, if you do set up a second limited company, you had better read up on the Companies Act rules and Corporation Tax rules on "associated companies".
Interesting and informed comments from Eric Mc as usual and I would strongly recommend considering this move against his concerns. Devices are unpopular with the Revenue and splitting turnover into two to enhance the VAT position is just such a matter they would take an interest in. It could be done but long term at what cost. Once riled these taxmen never forget and we are all, hopefully, in business long term. I would urge caution. Investigations rob businessmen of time and a lot of money. Best avoided.
jammy_basturd said:
Guessing from what you've said you're on the standard rate VAT scheme.
Why not talk to your accountant about moving to the flat rate scheme? General building and construction only pay 9.5% VAT.
True, but you'd still have to charge 20% so it's not going to help with this OP's issue where he's pricing himself out of work. It would mean he could keep a large portion of the VAT himself (not 9.5% because the flat rate is applied to the gross invoice not nett) but he'd have to add 20% before he could keep that.Why not talk to your accountant about moving to the flat rate scheme? General building and construction only pay 9.5% VAT.
He could do a calculation to equalise the amount added vs the 9.5% flat rate claim back, but the overall effect would still be to put his invoice to customers up by something around 12% or so.
Leaving the legal aspect aside for one moment have to agree with the comments on admin. We started out with a collection of 4 companies (1 parent owning 3 subsidiaries) as a means of keeping differing areas of business separate and allow for any failures / successes to be folded, invested in or sold separately without affecting the others.
Sound plan but too ambitious as we just were not doing enough business to warrant the extra admin, so have now collapsed everything to one.
Sound plan but too ambitious as we just were not doing enough business to warrant the extra admin, so have now collapsed everything to one.
Multiple entities can and do work - but only provided the business has sufficient resources to cope with the extra burden of administration and control. At the very least they should have an internal Financial Controller or Financial director to monitor everything.
If all you have is a book-keeper and an external accountant who looks in a couple of times a year, you are going to end up in trouble.
If all you have is a book-keeper and an external accountant who looks in a couple of times a year, you are going to end up in trouble.
Eric Mc said:
Multiple entities can and do work - but only provided the business has sufficient resources to cope with the extra burden of administration and control. At the very least they should have an internal Financial Controller or Financial director to monitor everything.
If all you have is a book-keeper and an external accountant who looks in a couple of times a year, you are going to end up in trouble.
Excellent informed professional advice. I hope the OP appreciates the years of knowledge required to offer such a balance. As in so many business ideas the downside risk involved must be the deciding factor. Withhout informed daily supervision at the level Eric is suggesting, this proposal could become very expensive inded, in both time and cost. What was intended to be a benefit could all too easily become a very expensive misadventure. Be fully aware of the all downside risks, should be taught in every college that offers tuition on effective business decision making process development. If all you have is a book-keeper and an external accountant who looks in a couple of times a year, you are going to end up in trouble.
Thank you for the advice,
Eric, as always thanks.
The admin side is the worrying part for me. I struggle with admin now, never mind with 2 companies. Im still on the tools and often working 14 hour days it becomes hard to work, quote, visit customers etc etc ...I have not found anyone yet who can do my practical job to my standard so for a while yet it seems Ill be on the tools. This makes it very difficult to keep up with admin. Coincidently , I have tomorrow and monday to organise my overdue VAT and end of year!
I should have maybe added that the decision is not purely for Tax reasons but marketing too. With the bulk of the work being rewiring Id like to market the company more as a rewire specialist and in particular have company name and domain containing "rewiring".
So an alternative then... Lets say I put up with the VAT for now. IS there any legal issue with starting another website with different domain etc basically fronting as a different division/branch/sister company etc but really just linking back to the main company ? This would be for marketing purposes only and all tax issues through main company ?
Eric, as always thanks.
The admin side is the worrying part for me. I struggle with admin now, never mind with 2 companies. Im still on the tools and often working 14 hour days it becomes hard to work, quote, visit customers etc etc ...I have not found anyone yet who can do my practical job to my standard so for a while yet it seems Ill be on the tools. This makes it very difficult to keep up with admin. Coincidently , I have tomorrow and monday to organise my overdue VAT and end of year!
I should have maybe added that the decision is not purely for Tax reasons but marketing too. With the bulk of the work being rewiring Id like to market the company more as a rewire specialist and in particular have company name and domain containing "rewiring".
So an alternative then... Lets say I put up with the VAT for now. IS there any legal issue with starting another website with different domain etc basically fronting as a different division/branch/sister company etc but really just linking back to the main company ? This would be for marketing purposes only and all tax issues through main company ?
fesuvious said:
Are your competitors not in a position where they should be vat registered?
I dont know about your business or location but if it is the same firms you are losing out to when they should be vat reg'd then shop them.
If you are running an honest enterprise against competitors who are not then report them to HMRC.
I had a builder (with an excellent reputation) do a loft conversion. I dont know about your business or location but if it is the same firms you are losing out to when they should be vat reg'd then shop them.
If you are running an honest enterprise against competitors who are not then report them to HMRC.
Now because he was just a one man band, he avoided charging VAT, by getting the client i.e. me, to pay for the materials up front (with VAT on) from his chosen supplier, with a cheque to them, and pay separately the electrician (with VAT on), but only when the conversion was finished, did we pay him for his labour (with no vat on). Which meant stage payments were not needed really. The guy was paying Corporation Tax, had insurance (I insisted on seeing the policy document and certificate before he started work) and I guess that his turnover was just below the level which he needed to be VAT registered. I estimated that if he'd have taken on staff, and increased his turnover we'd have been paying an extra 10%. Which is Ironic because one of his competitors was VAT registered and they were cheaper, but the references they gave were mediocre.
What boils my piss is the "Freelance" jobber, with no insurance, cash in hand, possibly on the dole, no invoices, no receipts, no headed notepaper, and NO COMEBACK.
I was going to take it this same way, but push the marketing position and education side.
If you have to be vat registered, tell them why, your a successful business with a wide range of skills and employes. You have all the liability insurances in place and if there is an issue you will still be around to help and fix it and because they will have paperwork proof of work they have real point of contact.
In fact, give them a copy of either a 'why are we more expensive' sheet or even a copy of your indemnity insurance when you quote, then anyone else who doesn't do this will be perceived as not having it or a bit flighty. A little sneaky, yes, but isn't all marketing and business?
V.
If you have to be vat registered, tell them why, your a successful business with a wide range of skills and employes. You have all the liability insurances in place and if there is an issue you will still be around to help and fix it and because they will have paperwork proof of work they have real point of contact.
In fact, give them a copy of either a 'why are we more expensive' sheet or even a copy of your indemnity insurance when you quote, then anyone else who doesn't do this will be perceived as not having it or a bit flighty. A little sneaky, yes, but isn't all marketing and business?
V.
So thanks again for the advice, heres where Im at.
Its tricky, at this stage in business I am often still dealing at the lower end of the market. Im confident eventually we will rise above this but for now Im still looking to win the cheaper jobs too.
I think starting another company will just create further headache.
Ive started on a new site which will focus on our main line of work. It will be portrait as a separate company but have similar themes , logos etc.
Somewhere Ill list "trading as 'main company'" and it looks like Ill just need to grit my teeth with the VAT.
I like the idea of educating the customer as too why were more expensive. Ive already looked into a new flyer which Ill hand to each client, although I am concerned as how this will be perceived , is it a bit unprofessional trying to shoot down my opposition ? having to explain ourselves ?
I already bombard the customer with ALOT of information on first visit. I always thought this was good but could I be over doing it and look as though Im trying to prove myself too much ?
Anyway I rustled this up very quickly , its not final by a long way but let me know what you think. I should state my company is NOT NICEIC or SELECT registered, as I have listed , but will be very soon. Also the last bit..am I opening up to everyone trying to cut me down on cost ?
At *** we believe in making things as transparent as possible for our clients…
Domestic rewiring is a very competitive market. We are well aware of our competitors, and the fact we will not be the cheapest quote you receive. Heres why..
x***, a registered business.
x*** Property Solutions is a Private Limited Company. We have a certificate of corporation from companies house stating our company number as 508742 (edited) . Limited companies file accounts with HMRC annually. Information about the company and its directors is open to the public domain. This should give our customers confidence that we are legit. If things go wrong, we can easily be found!
Insurance, a must.
Accidents can happen, and when they do they have the potential to cost a lot of money.
Take for example a nail through a rising water main in a 5th floor apartment, this has the potential to flood every home below. Electrician cut through the mains supply ? This could cost thousands to repair. Our experience and care helps avoids these scenarios but its better to be safe than sorry. *** hold Public Liability Insurance worth £2M with Allianz. Our policy number is LX2as187sssa7711 and our documents are always available to view.
The right men for the job.
Our team is growing. It wasn’t so long ago *** used to be a one man organisation. Its only in hindsight we realise how important it is to have the right men for the job. Our team consists of Electricians and “approved” Electricians. Approved electricians have further qualifications and have been tested at a higher level. We employ dedicated labourers and carpet fitters to help return your home to its original state. The final stage of rewiring involves “making good” the walls. Our time served plasterer has over 15 years experience.
Quality Matters.
We believe cheap materials to be a complete false economy. We have many call outs which involve replacing cheap products as they simply do not last the test of time. *** only install quality products from reputable manufacturers. If you do need to replace a part, rest assured that part will be readily available.
Peace of Mind….NICEIC and SELECT.
Enrolment with the NICEIC is voluntary, but we regard it as a badge of competency and professionalism and have made it a priority to enrol. The NICEIC have been assessing the technical competence of electrical contractors for over 50 years. All of our work is covered by the NICEICs insurance backed warrenty
SELECT is Scotlands trade association for the electrical industry. This provides assurance you are dealing with a quality contractor, backed by SELECTs Code of practice, contract completion guarantee and customer complaints service.
VAT - Value Added Tax.
No one likes to pay more than they have to. Our customers often ask why we charge VAT when others don’t. The answer is simple, we do more business. When companies start trading at a higher level they are required to charge VAT on all costs. This will at least bring confidence that we are good at what we do and we do often over the course of the year ! VAT is currently charged at 20%.
The customer comes first.
Our aim is to win every job we quote on. We understand budgets and restrictions and will always try to tailor things to your needs. Feel free to discuss our quote with us, if we can improve we will!
Its tricky, at this stage in business I am often still dealing at the lower end of the market. Im confident eventually we will rise above this but for now Im still looking to win the cheaper jobs too.
I think starting another company will just create further headache.
Ive started on a new site which will focus on our main line of work. It will be portrait as a separate company but have similar themes , logos etc.
Somewhere Ill list "trading as 'main company'" and it looks like Ill just need to grit my teeth with the VAT.
I like the idea of educating the customer as too why were more expensive. Ive already looked into a new flyer which Ill hand to each client, although I am concerned as how this will be perceived , is it a bit unprofessional trying to shoot down my opposition ? having to explain ourselves ?
I already bombard the customer with ALOT of information on first visit. I always thought this was good but could I be over doing it and look as though Im trying to prove myself too much ?
Anyway I rustled this up very quickly , its not final by a long way but let me know what you think. I should state my company is NOT NICEIC or SELECT registered, as I have listed , but will be very soon. Also the last bit..am I opening up to everyone trying to cut me down on cost ?
At *** we believe in making things as transparent as possible for our clients…
Domestic rewiring is a very competitive market. We are well aware of our competitors, and the fact we will not be the cheapest quote you receive. Heres why..
x***, a registered business.
x*** Property Solutions is a Private Limited Company. We have a certificate of corporation from companies house stating our company number as 508742 (edited) . Limited companies file accounts with HMRC annually. Information about the company and its directors is open to the public domain. This should give our customers confidence that we are legit. If things go wrong, we can easily be found!
Insurance, a must.
Accidents can happen, and when they do they have the potential to cost a lot of money.
Take for example a nail through a rising water main in a 5th floor apartment, this has the potential to flood every home below. Electrician cut through the mains supply ? This could cost thousands to repair. Our experience and care helps avoids these scenarios but its better to be safe than sorry. *** hold Public Liability Insurance worth £2M with Allianz. Our policy number is LX2as187sssa7711 and our documents are always available to view.
The right men for the job.
Our team is growing. It wasn’t so long ago *** used to be a one man organisation. Its only in hindsight we realise how important it is to have the right men for the job. Our team consists of Electricians and “approved” Electricians. Approved electricians have further qualifications and have been tested at a higher level. We employ dedicated labourers and carpet fitters to help return your home to its original state. The final stage of rewiring involves “making good” the walls. Our time served plasterer has over 15 years experience.
Quality Matters.
We believe cheap materials to be a complete false economy. We have many call outs which involve replacing cheap products as they simply do not last the test of time. *** only install quality products from reputable manufacturers. If you do need to replace a part, rest assured that part will be readily available.
Peace of Mind….NICEIC and SELECT.
Enrolment with the NICEIC is voluntary, but we regard it as a badge of competency and professionalism and have made it a priority to enrol. The NICEIC have been assessing the technical competence of electrical contractors for over 50 years. All of our work is covered by the NICEICs insurance backed warrenty
SELECT is Scotlands trade association for the electrical industry. This provides assurance you are dealing with a quality contractor, backed by SELECTs Code of practice, contract completion guarantee and customer complaints service.
VAT - Value Added Tax.
No one likes to pay more than they have to. Our customers often ask why we charge VAT when others don’t. The answer is simple, we do more business. When companies start trading at a higher level they are required to charge VAT on all costs. This will at least bring confidence that we are good at what we do and we do often over the course of the year ! VAT is currently charged at 20%.
The customer comes first.
Our aim is to win every job we quote on. We understand budgets and restrictions and will always try to tailor things to your needs. Feel free to discuss our quote with us, if we can improve we will!
Edited by Jamster123 on Monday 9th June 19:09
Edited by Jamster123 on Monday 9th June 19:10
fesuvious said:
Top draw.
very impressive. The language is perfect. Be warned ; your presentation now needs to do it justice. No inkjet printed A4 !
but yes, sack the last bit.
Excellent, Our presentation is pretty good, our vans look smart , clothes all neat etc etc but I always struggle to convince them why they should pick us over cheaper guys. We tend to win the jobs in the nice areas but I want to explain to people why they should avoid the "cash in hand" folk.very impressive. The language is perfect. Be warned ; your presentation now needs to do it justice. No inkjet printed A4 !
but yes, sack the last bit.
Edited by fesuvious on Monday 9th June 21:33
Ps. Funny thing, I just bought a new laser printer today no joke
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