New business VAT Question

My wife is thinking about setting up a new online business but are unsure about VAT.

Do we not have to register with HMRC until we are going to pass the £85k threshold ?
What about companies house ?

Also would we still have to charge VAT online or not.

Thanks 

Comments

  • https://www.gov.uk/how-vat-works

    Is she going to be a director of a limited company or will she be self employed?
  • SwayZ
    SwayZ Posts: 19
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    https://www.gov.uk/how-vat-works

    Is she going to be a director of a limited company or will she be self employed?
    To be honest we haven't thought about that, and after a quick glance I'm not sure of the pros/cons.

    She's ordered from a similar company and wasn't charged taxes and they aren't on companies house.
  • SwayZ said:
    https://www.gov.uk/how-vat-works

    Is she going to be a director of a limited company or will she be self employed?
    To be honest we haven't thought about that, and after a quick glance I'm not sure of the pros/cons.

    She's ordered from a similar company and wasn't charged taxes and they aren't on companies house.
    You mentioned ‘companies house’ which suggested your wife’s business would operate as a limited company of which she would be a director and not, therefore, self-employed. 

    Is this going to be the case? 
  • Grumpy_chap
    Grumpy_chap Posts: 14,445
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    SwayZ said:
    My wife is thinking about setting up a new online business but are unsure about VAT.

    Do we not have to register with HMRC until we are going to pass the £85k threshold ?
    What about companies house ?

    Also would we still have to charge VAT online or not.

    Thanks 
    If the business is registered for VAT, then it must charge VAT on sales at the appropriate rate.
    If the business is not registered for VAT, then it must not charge VAT on sales.

    There is no need to register for VAT until it becomes apparent that the VAT-threshold will be reached.
    In some cases, it is advantageous to register regardless of the threshold.  It allows the recovery of input VAT and may be suitable if most customers will be other businesses who are VAT-registered.

    If most customers will be individual consumers, then registering for VAT means VAT must be charged and may then result in lower profits.  Most consumers buy on the basis of total price which is set in the market-place and do not pay more just because the supplying company is VAT-registered.

    Will there be large start-up expenditure for which it would be desirable to be able to recover VAT?
  • SwayZ
    SwayZ Posts: 19
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    It's a business from home and it will sell to individual consumers.

    It's cost maybe £700 so far but the product is around 40% per item it all goes well.

    I'm assuming we could start first without being VAt registered at first and it looks like it's going over the £85k take the 20% hit later on so the business has time to grow with cashflow right ?
    My wife has bought from similar companies before and she didn't pay any tax on her receipt.

    In either case do you have to be registered with companies house if you are classed as self employed.

    Another random question, I'm retired from an injury in the military in which I received compensation. If she set up as a limited company in the case things didn't go well would that protect any pensions or assets I receive?

    Thanks 

  • I think that you are still confused as to the different business mediums. Limited companies register with companies house. If your wife is self-employed she is not a limited company. 

    If she registers as a limited company with companies house she is not self-employed. The company and your wife are two entirely separate entities. It should follow that, if required, it is the company that must register for VAT, not your wife. 




  • DullGreyGuy
    DullGreyGuy Posts: 9,184
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    SwayZ said:
    If she set up as a limited company in the case things didn't go well would that protect any pensions or assets I receive?
    You need to get your head around the idea of legal entities, you, your wife and her company (if she goes down that route) are 3 people (companies are referred to as a person too). You all own stuff, have your own bank accounts etc. One person cannot simply take another persons property. 

    In principle a LTD therefore protects the assets of the shareholders who's liability is limited to the nominal share value if its not already been paid up... most small companies start with 100 shares at £1 each. So if your wife followed this approach her liability, not withstanding the below, would be £100 if she had all the shares.

    However, because of this low limit of liability in some cases personal guarantees from either directors (more commonly) or shareholders (much more rarely) are also required. This is more likely to be dealing with large corporations like banks etc rather than private customers who either buy under your terms or go away.

    There are limited cases where someone can claim directly against a director even without a personal guarantee, eg a breach of health & safety law. For this there is D&O insurance and for other cases there is Public and Product liability (for small businesses Public Liability includes Product coverage).

    Your pension is your pension so unless you are a director or shareholder then someone else cannot take it. Assets are more murky as with many married couples they are jointly held and so if that's the case and your wife had a personal liability then they could be at risk. 
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