VAT query

looknohands

I have setup a limited company and am registered for VAT.

I'm moving all my clients over from my sole-trader business to my Limited, it's the same line of business so they're all happy and prices remain same other than VAT.

I am still transitioning from sole-trader to limited so some invoices will be paid to my old business and others to my new one due to contracts, purchase orders etc...

I'm wondering what the deal is on a client I quoted last month (without VAT) through myself when I was a sole trader. They've come back now asking for the work to proceed, am I ok to run with this as the sole-trader business and not charge them VAT? They aren't VAT registered so would be taking quite a hit if I have to add it on.

Suarez

looknohands wrote: »

I have setup a limited company and am registered for VAT.

I'm moving all my clients over from my sole-trader business to my Limited, it's the same line of business so they're all happy and prices remain same other than VAT.

I am still transitioning from sole-trader to limited so some invoices will be paid to my old business and others to my new one due to contracts, purchase orders etc...

I'm wondering what the deal is on a client I quoted last month (without VAT) through myself when I was a sole trader. They've come back now asking for the work to proceed, am I ok to run with this as the sole-trader business and not charge them VAT? They aren't VAT registered so would be taking quite a hit if I have to add it on.

What was the reason for registering for VAT?

looknohands

Accountant mentioned something about using a lot of UK suppliers that charge VAT but having a lot of work for overseas businesses who we can't charge VAT out to. I think he said we'd have a surplus of VAT if that's a thing?

Pennywise

There will be a date when your s/t business ceases and the ltd starts. You can't invoice from s/t after that date, nor the ltd before that date. Such a conversion is akin to actually selling the business, i.e. different legal structure so you can't pick and choose. You have to take the occasional hit to benefit from the bigger picture.

looknohands

Confusing, so it's not possible to run two businesses side by side?

One client has told me contractually they aren't able to pay my last invoice to my limited company, it has to be paid into my sole trader bank account details I gave them when I signed the contract for the project 3 months ago.

So do I take the hit on that invoice due to setting up a new business, as legally I've broken their contract?

EDIT Just to note I haven't changed the structure of the existing sole-trader business I have set-up an entirely new company. I have seperate tax logins, bank accounts, accontants, book-keeping and assets for both of these.

The limited company is a clean slate, entirely from scratch.

paddyrg

No, you can still receive the money, as a company director you have to complete a personal tax return at year-end anyway, so you'll declare it there. As long as you keep the two separate so a personal invoice is personal, company invoice is company, you should be fine

Aquamania

looknohands wrote: »

I have setup a limited company and am registered for VAT.

I'm moving all my clients over from my sole-trader business to my Limited, it's the same line of business so they're all happy and prices remain same other than VAT.

I am still transitioning from sole-trader to limited so some invoices will be paid to my old business and others to my new one due to contracts, purchase orders etc...

I'm wondering what the deal is on a client I quoted last month (without VAT) through myself when I was a sole trader. They've come back now asking for the work to proceed, am I ok to run with this as the sole-trader business and not charge them VAT? They aren't VAT registered so would be taking quite a hit if I have to add it on.

Whilst operating as both an ST and a Ltd co is not in itself a problem (as long as you are clear to the customer who they are dealing with), the problems you have, especially if the two businesses are essentially providing the same goods or services, is the same as if you were to have 2 Ltd co's , perhaps each with a t/o of £50kpa (so both under the VAT registration threshold) or even possibly one registered for VAT and the other not.

The problem you may face is the VAT man may decide you are acting to avoid/evade VAT.

Hence you should probably do what Pennywise suggested in post#4 i.e. work as ST until a certain date, after which all transactions should go through Ltd co (and none before).

Perhaps it would have been best to have thought about that before you got to this stage, particularly with quotations you were giving out as ST. But hindsight is a wonderful thing, isn't it.

Where to go from here? I would suggest you explain to your customer the situation. Say that you are no longer prepared to offer the goods/services as a sole trader, but you would be prepared to supply them through your newly formed limited company.

Explain that the Ltd co is registered for VAT.
It's up to you as to whether you, and what you think you can get away with, as to whether you now add 20% VAT to the price already quoted ... or whether on this occassion you would be prepared to take the hit yourself so that your customer pays the same price as quoted, albeit now includes VAT.
Either way it should be a new quote from the ltd co.

Aquamania

looknohands wrote: »

Confusing, so it's not possible to run two businesses side by side?

One client has told me contractually they aren't able to pay my last invoice to my limited company, it has to be paid into my sole trader bank account details I gave them when I signed the contract for the project 3 months ago.

So do I take the hit on that invoice due to setting up a new business, as legally I've broken their contract?

EDIT Just to note I haven't changed the structure of the existing sole-trader business I have set-up an entirely new company. I have seperate tax logins, bank accounts, accontants, book-keeping and assets for both of these.

The limited company is a clean slate, entirely from scratch.

For that particular contract which was with you as an ST, then the invoice should be from you as an ST.
As you are not registered for VAT (only your ltd co is) then no VAT applies.

The VATman will not worry, as presumably 3 months ago was before your ltd co started trading, or better still was even incorporated.

looknohands

I've spoken to HMRC it's fine, advisor even said I need to keep the soletrader account open to submit dividends or additional income for myself personally as they're separate UTRs.

She said the VAT is not a problem unless the two business turnover adds up to the threshold, my year end for ST was April and turnover since is only 20k and then LTD hasn't even had an invoice paid as was only incorporated 31st May 2016 so well below.

Thanks for the help.

bris

The Ltd co is it's on entity you work for it. You can still take on any work you see fit on the side but obviously you can't use invoices, letter heads etc from the ltd co.


You can run as many businesses at the same time as you want. Any personal work will just be added to your tax return as self employed.


Your tax return has different boxes for all your income streams, self employed, dividends etc.

martindow

bris wrote: »

The Ltd co is it's on entity you work for it. You can still take on any work you see fit on the side but obviously you can't use invoices, letter heads etc from the ltd co.


You can run as many businesses at the same time as you want. Any personal work will just be added to your tax return as self employed.


Your tax return has different boxes for all your income streams, self employed, dividends etc.

I would be cautious working on this basis. If you are doing 'private' work which is in the same line of business as the VAT registered company, HMRC could well see it as VAT avoidance.