Reply to: VAT registration and turnover threshold

[MarillionFan]

Dim

I will give you a proper reply.

There is nothing wrong with doing this and in fact is beneficial for you. I have come across lots of small businesses who do this. In fact, I found one retailer who had four companies within one retail premises each doing less than the VAT threshold.

Effectively you still pay VAT on purchases where applicable but then you double the price and sell it on. You can either sell your product to the end customer cheaper than competitors or sell at the same price and make an extra 17.5%.

I recently sold stock from my VAT registered LTD company(shop) to another non-vat registered vehicle. I then use this to sell online and make extra on the VAT.

Perfectly legal - just the paperwork is a pain if you have lots of mini companies.

Note: Get a spreadsheet, use two companies. The first A buys the stock from your supplier and is VAT registered. Then get A to sell to B at half what you paid. A gets a VAT rebate, B gets to keep the VAT part on sales. DOuble whammy!!! (Carousel anyone)

[TheFaQQer]

Eh? Don't you mean that you need to reduce your net prices - ie. adjust your selling price to remain attractive to customers ? You still need to issue valid VAT invoices which correctly show the split between the net price and the VAT.

Yes - that's what I meant. Reduce net prices so that the overall price to the customer does not go up by 17.5%.

[oraclesmith]

You could bite the bullet and pay some of the VAT yourself - that's what my wife has to do to remain competitive.

So pay the VAT man his 17.5% (or whatever the rate is for you), but only increase your gross prices by 10%. You pick up the difference, and remain competitive but reduce your profit margin.

Of course, that only works if the margins are big enough to make it worthwhile.

Eh? Don't you mean that you need to reduce your net prices - ie. adjust your selling price to remain attractive to customers ? You still need to issue valid VAT invoices which correctly show the split between the net price and the VAT.

DP - if you register your internet trading company for VAT, HMRC will no doubt spot that you fall under the artificial separation SOP, because you're already a registered taxable person. If they do their job properly they will try to get the VAT back for all your past internet trading, even if you haven't collected it from the customers. And no doubt they'll try to fine you for not registering sooner. In my opinion. Any accountants here ?

[TheFaQQer]

You are all missing the point.

If my Internet trading company becomes VAT registered, my prices to joe public go up 17.5%

You could bite the bullet and pay some of the VAT yourself - that's what my wife has to do to remain competitive.

So pay the VAT man his 17.5% (or whatever the rate is for you), but only increase your gross prices by 10%. You pick up the difference, and remain competitive but reduce your profit margin.

Of course, that only works if the margins are big enough to make it worthwhile.

[oraclesmith]

I thought VAT was based on the types of goods not the threashold - being VAT registered only means that you can claim back any VAT you pay.

If you sell, say hot food - you have to pay 17.5% VAT to HMRC whether ypu are registered or not - it does however make sense to register because then you actually get so mething back.

If you don't charge VAT you still have to pay it to HMRC.

Wrong. You are not allowed to charge VAT if you are not VAT registered. This is because the customer can't show input VAT from purchases from companies which aren't registered and in turn can't claim back the VAT you're charging them.

All certain types of supply are TAXABLE, but this doesn't mean you should actually be charging VAT. If you are charging VAT and aren't registered, you are breaking the law. In my opinion.

[Weltchy]

Cant you apply to be VAT Exempt? Not sure on the rules governing this however!!!

[Bluebird]

I thought VAT was based on the types of goods not the threashold - being VAT registered only means that you can claim back any VAT you pay.

If you sell, say hot food - you have to pay 17.5% VAT to HMRC whether ypu are registered or not - it does however make sense to register because then you actually get so mething back.

If you don't charge VAT you still have to pay it to HMRC.

[oraclesmith]

You may be caught by this already - which means that you may owe HMRC the VAT you should have been charging your internet customers from day one.

[DimPrawn]

This is covered by the Artificial separation of business activities HMRC statement of practise. See section 14 of this link.

http://customs.hmrc.gov.uk/channelsP...086#P510_57488

Thanks - That a spot on answer.

[DimPrawn]

It could work, but creating lots of smaller companies will give you a fair amount of administration - not sure whether the saving that you make through being ex-VAT would be enough to justify the cost and hassle of keeping multiple companies.

As Tool said, if your VATable expenses are very low, then you might be as well off registering on the flat rate system and getting the (limited) benefit that it offers you.

Its a bit of a bugger all round though, VAT is the price you pay for yourco being successful

You are all missing the point.

If my Internet trading company becomes VAT registered, my prices to joe public go up 17.5%

[DimPrawn]

Nearing? What are you...a tape changer?

This is my Plan B company which trades on the Internet.

My IT contracting company is already VAT registered and is WELL over the VAT limit.

[oraclesmith]

Hyperthetical question.

Say my customers are joe public and hence being VAT registered makes my co 17.5% more expensive for them. Also the goods or services I sell do not allow me to claim much VAT back, so being registered is a bad thing.

However my co is nearing the 60K ish limit.

What is to stop me creating two (or even 100) limited companies, each specialising in one particular product or service?

E.g. If I sell mobile phones to punters, creating Nokia 4 U ltd, Sony 4U ltd, Motorola 4U ltd, etc

In this way each company is under the VAT limit.

Thoughts and comments please.

This is covered by the Artificial separation of business activities HMRC statement of practise. See section 14 of this link.

http://customs.hmrc.gov.uk/channelsP...086#P510_57488

[VectraMan]

What happens if one particular area suddenly takes off? It might be difficult to divide that business up into smaller companies quickly enough to avoid reaching the VAT limit.

I guess there's nothing wrong in principle, but in practice it could quickly become more hassle than it's worth.

[XLMonkey]

It could work, but creating lots of smaller companies will give you a fair amount of administration - not sure whether the saving that you make through being ex-VAT would be enough to justify the cost and hassle of keeping multiple companies.

As Tool said, if your VATable expenses are very low, then you might be as well off registering on the flat rate system and getting the (limited) benefit that it offers you.

Its a bit of a bugger all round though, VAT is the price you pay for yourco being successful

[Tool]

Hyperthetical question.

Say my customers are joe public and hence being VAT registered makes my co 17.5% more expensive for them. Also the goods or services I sell do not allow me to claim much VAT back, so being registered is a bad thing.

However my co is nearing the 60K ish limit.

It is not necessarily a bad thing. You will most probably be elligible for the Flat Rate Scheme. You invoice with VAT, so 17.5% more, and only pay back to the VAT man 13%. You can't claim back VAT on any expenses, but this is apparently not a problem for you.
This is a very easy way to make a few extra quids.