Approaching VAT limit, do not want to register for VAT

Legacy_user

Sales are around £75k since April (new business), plus current stock £2k and I am at the VAT limit. I want to order more stock to make more profit but don't want to register for VAT (not got the time to make it worthwhile, lots of extra bookkeeping). I have thought about seperating my business into 2, for example one popular product to have a business of its own, and all the other products to remain another business. Is this illegal though:( HELP

phill99

Depends on how you operate your business. If you are self employed and hit the threshold up you have to register. There is no option.

If you run a limited company, you can set up another limited company (not a subsidiary of the first company) to keep below the threshold.

I use to run a limited company and had the same problem. I looked at setting up another company but the accountancy fees for the second company exceeded the accountancy fees for sorting out the VAT, so I opted to go vat registered. It does have its advantages, but you have to remember not to spend the vat you collect!

YoungBusinessman

I would have loved to be able to avoid it in future, however there is just no way i can.

paddyrg

Speaking as someone who is voluntarily VAT registered, it's not as big a deal as people make out. You pay VAT, you charge VAT, you fill in an online form every 3 months telling HMRC what the difference beween those figures is and they debit your debit card or direct debit from your bank. Compared with splitting a company and mysteriously trading as both mycorp and mycorp2 (which looks weird/dodgy to clients), and managing which debts and which income apply to each company, it's a doddle.

pleasedelete

paddyrg wrote: »

Speaking as someone who is voluntarily VAT registered, it's not as big a deal as people make out. You pay VAT, you charge VAT, you fill in an online form every 3 months telling HMRC what the difference beween those figures is and they debit your debit card or direct debit from your bank. Compared with splitting a company and mysteriously trading as both mycorp and mycorp2 (which looks weird/dodgy to clients), and managing which debts and which income apply to each company, it's a doddle.

That is flat rate VAT but you can't do it if turnover exceeds £150 k (I think can't remember exactly). Based on ops figures he will probably exceed that.

JasonLVC

berbastrike wrote: »

Sales are around £75k since April (new business), plus current stock £2k and I am at the VAT limit. I want to order more stock to make more profit but don't want to register for VAT (not got the time to make it worthwhile, lots of extra bookkeeping). I have thought about seperating my business into 2, for example one popular product to have a business of its own, and all the other products to remain another business. Is this illegal though:( HELP

Sales of £75k since April to date is some good going (well done!).

It is not illegal to seperate a trade but HMRC do have the power to rejoin a business from the date they were split where HMRC believe the split is to avoid tax/VAT.

So it could lumber you with a massive VAT bill and penalties down the line (ie, the value of sales you make in both trades when added together would push you over the VAT limit and HMRC would assess for VAT on the total value of sales made by both entities over the VAT threshold, as you haven't charged VAT, the VAT debt would be owed by the two trades and if you are a sole trader then you'd owed that personally so at least consider incorporating one or both trades to protect yourself) - but incorporating will add further accounting costs of course.

To seperate a business into two takes substantial effort to keep them apart to satisfy HMRC (ie, if sharing the same premises then one trade needs to charge rent to the other, if sharing tools then think why would two seperate business 'share' tools - they wouldn't for free, seperate bank accounts, different websites, different contact telephone numbers, etc). Anything that looks like one business pretending to be two will be open to attack from HMRC.

If the two trades are suitably different then it is easier to pull off (ie, one trade sells bricks, the other offers marketing consultancy advice will not see HMRC bat an eyelid, but where you have one trade selling window frames and one selling door frames then the similarity is too close for HMRC to ignore).

Details from HMRC here (13) :- http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageExcise_ShowContent&id=HMCE_CL_000086&propertyType=document#P533_58214

You say you haven't got the time to be bothered with VAT but it is a legal requirement to register if you exceed the threshold, not having the time is not a sufficient excuse and if you do have little time, then splitting the trade into two will simply double your efforts and leave you with even less time as you'll be spending your day raising recharges back and forth from your trades to each other to keep up appearances.

If what you mean is that you don't want to pay VAT, then that's fine, be clear on your intention and then the solutions that are available can be looked at and you can weigh up the risks as to whether its worth doing or not, but if it really is just lack of time or understanding then that is very easy to resolve.

JasonLVC

pleasedelete wrote: »

That is flat rate VAT but you can't do it if turnover exceeds £150 k (I think can't remember exactly). Based on ops figures he will probably exceed that.

You have to have t/o less than £150k to join the scheme but once you are on it, you can remain on the scheme until your t/o exceeds £230k
http://www.hmrc.gov.uk/vat/forms-rates/rates/rates-thresholds.htm#6

So it is still a viable option to go down this route and of course, a business turning over nearly qtr of a million is not a hobby or side-line but a rather successful business.

martindow

Aren't you going to reach the limit of 77 000 within days? 75 000 since April is about 12 000 a month. 2 000 is 5 days trading.

I think you have no option but to register, but is this such a bad thing? If you are supplying businesses it will make no difference to them and allow you to reclaim your VAT. If you are selling retail you seem to have a flourishing business which hopefully can still work even with VAT.

Atidi

berbastrike wrote: »

Sales are around £75k since April (new business), plus current stock £2k and I am at the VAT limit. I want to order more stock to make more profit but don't want to register for VAT (not got the time to make it worthwhile, lots of extra bookkeeping). I have thought about seperating my business into 2, for example one popular product to have a business of its own, and all the other products to remain another business. Is this illegal though:( HELP

http://www.hmrc.gov.uk/vat/start/register/when-to-register.htm#7

HiMyNameIsLauren

As Phil99 mentioned,
"If you run a limited company, you can set up another limited company (not a subsidiary of the first company) to keep below the threshold." if you go down this route, ensure it is TWO ltd companies - a subsidiary will mean that HMRC will come knocking for the VAT anyway! Also, bare in mind that if you have 2 ltd companies, but there's no clear divide, this could also trigger them to, again, come knocking for VAT owed. Also, this could become a headache, managing 2 lots of accountancy paper work.

If I was you, I'd become VAT registered. As someone else also mentioned - if you keep your books up to date, it's not much effort to complete this via the HMRC website every 3 months.

paddyrg

pleasedelete wrote: »

That is flat rate VAT but you can't do it if turnover exceeds £150 k (I think can't remember exactly). Based on ops figures he will probably exceed that.

No, I do 'normal' VAT, not flat-rate. The administration overhead really isn't so huge :-)