Trades/private clients/VAT
Discussion
There was chat about the threshold being lowered but I see now that wont happen.
I run a small electrical firm who only deal with private clients, we will hit the threshold in 2 months trading.
It then poses the problem that we have to charge an additional 20% to our clients, although the problem is non of our competitors are VAT registered. We end up doing business as we are too expensive. Ive been here before with another business.
I know our competitors will make more than the threshold in a year, so whats going on? do people just ignore it?
Our average job is £3000 (which will now be £3600) with material spend only £700. We will turn over 500k.
Private clients will then offer cash to try and cut costs.
How do we help this situation? Is there any respite for small businesses trying to success in the private market!?
I run a small electrical firm who only deal with private clients, we will hit the threshold in 2 months trading.
It then poses the problem that we have to charge an additional 20% to our clients, although the problem is non of our competitors are VAT registered. We end up doing business as we are too expensive. Ive been here before with another business.
I know our competitors will make more than the threshold in a year, so whats going on? do people just ignore it?
Our average job is £3000 (which will now be £3600) with material spend only £700. We will turn over 500k.
Private clients will then offer cash to try and cut costs.
How do we help this situation? Is there any respite for small businesses trying to success in the private market!?
227bhp said:
Do more work for commercial VAT reg clients and any private stuff shove in your back pocket.
Or find out how your competition is doing it, they're either a lot smaller than you or are doing the above.
Publicly advocating fraud - that's smart.Or find out how your competition is doing it, they're either a lot smaller than you or are doing the above.
Don't be so sure that the registration threshold will not be lowered. The Chancellor stated in his budget in November that he intends to review the threshold. I expect it will come down at some point. Here's what was actually said -
VAT registration threshold – In response to the Office of Tax Simplification’s report Value Added Tax: Routes to Simplification, the government will consult on the design of the threshold, and in the meantime will maintain it at the current level of £85,000 for two years from April 2018.37 (55)
Jamiecool said:
I know our competitors will make more than the threshold in a year, so whats going on? do people just ignore it?
Don't worry about what they're doing. You don't have an intricate knowledge of how they run their businesses.
Concentrate on getting customers who want a good job, not a cheap job.
Slightly confused by your post - it comes across that you will soon have to charge VAT (currently £3k will be £3.6k) but if you have that level of turnover surely you are already charging VAT - you must have been for a while? So you already know whether it is harming you or not, and if your turnover is £500k and your competition are below the VAT threshold then it is not really harming you!
around here there seems to be no issue with companies who charge VAT to private clients - yes it is a bit more expensive, but they simply:
- provide better customer service
- have more staff so that they are more likely to be able to do the work & sooner
- take a smaller margin per job, but have more jobs so still make their money
- etc.
think of the VAT threshold in this situation as helping the smaller business - once you go past it and your business is more established, you don't need that same help...
the difference should not be 20% on a job as you can also reclaim the VAT - so you only need to charge extra on the job at the rate of vat on your profit margin and non-reclaimable overheads like staff etc. - so if a job is costing £3,000 for the punter and that is £2,000 of parts and £600 of staff time and £400 of profit then you don't need to charge them £3,600 going forwards - instead consider that you will be reclaiming £333+ of VAT on your parts, meaning that you can charge them: £1,666 for the parts + £600 for labour & £400 for profit = £2,666 + VAT = c. £3,200 - so in this example, registering for VAT need only push the price up by 1/3 of what you think - i.e. c. 7-8% of the overall bill...
around here there seems to be no issue with companies who charge VAT to private clients - yes it is a bit more expensive, but they simply:
- provide better customer service
- have more staff so that they are more likely to be able to do the work & sooner
- take a smaller margin per job, but have more jobs so still make their money
- etc.
think of the VAT threshold in this situation as helping the smaller business - once you go past it and your business is more established, you don't need that same help...
the difference should not be 20% on a job as you can also reclaim the VAT - so you only need to charge extra on the job at the rate of vat on your profit margin and non-reclaimable overheads like staff etc. - so if a job is costing £3,000 for the punter and that is £2,000 of parts and £600 of staff time and £400 of profit then you don't need to charge them £3,600 going forwards - instead consider that you will be reclaiming £333+ of VAT on your parts, meaning that you can charge them: £1,666 for the parts + £600 for labour & £400 for profit = £2,666 + VAT = c. £3,200 - so in this example, registering for VAT need only push the price up by 1/3 of what you think - i.e. c. 7-8% of the overall bill...
fouronthefloor said:
Jamiecool said:
I know our competitors will make more than the threshold in a year, so whats going on? do people just ignore it?
Don't worry about what they're doing. You don't have an intricate knowledge of how they run their businesses.
Concentrate on getting customers who want a good job, not a cheap job.
The VAT threshold is quite a hit for new businesses. One I was involved with sold products regularly at £5000, by year 2 we were selling exactly the same products at £6000 just because we has to add VAT. It inevitably hit sales, although not to a huge degree. In the end the business moved into higher value jobs where everyone (all competitors) charged VAT.
Also, bear in mind you can reclaim VAT on your materials etc too so there is some gain for you.
KevinCamaroSS said:
Jamie,
IIRC the threshold is reached if you turn over 85K/12 per month, so if you are turning over more than about £7K per month you need to be VAT registered now.
Thanks for all your replies guys. IIRC the threshold is reached if you turn over 85K/12 per month, so if you are turning over more than about £7K per month you need to be VAT registered now.
This comment above is important. Surely any decent self-employed tradesmen will turnover more than 85k. This is what puzzles me, it should be a level playing board across the field.
Jamiecool said:
Surely any decent self-employed tradesmen will turnover more than 85k. This is what puzzles me, it should be a level playing board across the field.
Sounds a bit unlikely to me, you'd be working all year for 6 days a week at c £270 a day. Few people sustain that all year, most people work a season or take a few weeks off, or even just work a shorter week. Mind you it's surprising how often you meet people who claim to earn fifteen hundred a week take 'ome on the tools
Mr Pointy said:
Eric Mc said:
For a person operating completely on their own, achieving £85,000 on "labour only" would mean working very, very hard and very long hours
Nonsense. Have you seen what electricians charge per day?The main factor that puts one man band traders over the VAT threshold is the fact that they are also charging customers for the materials they are using on a job.
As has been said above, the small traders who aren't VAT registered eill not be able to reclaim VAT on the good and services they buy to provide their onward services.
By becoming VAT registered you gain that advantage against them, to virtually balance out the fact they don't charge the VAT at the client end.
Add to that that if you're of significant scale over the unregistered providers, you ought to be able to negotiate better prices and rates on your own suppliers' products and services, which should really begin to give you an advantage ovet them, irrespective of VAT registration.
Naturally there'll be a middle ground where you're not quite one size or the other; the challenge is deciding what size business you really ought to be and acting out the necessary plan to achieve it. At £500k t/o it might be marginal, at £5m, the one man band operators will be moaning about how they can't compete with you on decent sized jobs.
By becoming VAT registered you gain that advantage against them, to virtually balance out the fact they don't charge the VAT at the client end.
Add to that that if you're of significant scale over the unregistered providers, you ought to be able to negotiate better prices and rates on your own suppliers' products and services, which should really begin to give you an advantage ovet them, irrespective of VAT registration.
Naturally there'll be a middle ground where you're not quite one size or the other; the challenge is deciding what size business you really ought to be and acting out the necessary plan to achieve it. At £500k t/o it might be marginal, at £5m, the one man band operators will be moaning about how they can't compete with you on decent sized jobs.
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