to VAT or not to VAT?

theGrinch

Hello,

A friend of mine (not me!) is thinking of expanding and moving from self employed to a LTD company status.

His main concern is that by expanding his turnover may in theory exceed the VAT threshold, meaning he will have to charge VAT to his customers (mostly non-VAT registered). As a result he fears his non-VAT registered competitors will undercut him by 17.5%. In practice, he thinks that as he levies and collects VAT he will not increase much above £58k, but will still have to collect VAT.

what are the tangible benefits registering for VAT? I dont think the benefits are that great given his clients are non VAT registered.

heleen

My understanding is that your firend will need to rgeister for VAT (or not) regardless of whether he is self employed or a limited company. The threshold applies for both.

If he can stay below the threshold he should only consider becoming VAT registered if he buys a lot of stuff so he can reclaim the VAT (and maybe give a discount to his customers to offset the VAT he needs to charge).

If he does need to go for VAT because he has exceeded the threshold, he should look into the VAT arrangement for small businesses which basically have a flat rate you pay depending on waht kind of business you are and so you don't need to keep receipts and the admin is much easier. I end up making a profit on that because I buy so little!!

HMCE Reference:Notice 733
Flat Rate Scheme for small businesses

zcaprd7

Yes Flat rate scheme is a must if you aren't going to buy much stuff.

You also get an extra 1% knocked off your level (dependent on business) for your first year - you end up charging 17.5% for vat but only giving a portion of it back!