VAT registered pros & cons

kdean

My hubby is planning on moving into the trade sector and will be self employed. He is planning on teaming up with a friend and starting business together. Their turnover will be over £60k mark and was looking into all the info about being VAT registered. I am a bit dim when it comes to this and would be grateful if someone could let me know a few things about being VAT registered, pros and cons that sort of thing. I have tried looking on HMRC but it just confuses me too much.

Nomad25

I'm no expert - just a small business owner, however, if the business as registered has a turnover of more than 63K, it is mandatory to register for VAT - and returns will have to be submitted regularly.

kdean

Thanks I had deciphered about that much but just don't really know what it means to be VAT registered. I don't know if I am making much sense here but basically just wanted to know are there any pros or cons of being VAT registered? For instance are there things he can claim back because he is VAT registered. Please explain as if you are talking to a six-year old as when it comes to the tax side of things that is how I feel.

Nomad25

I'm sure an expert will come to this thread soon and help, in meantime - if he has to pay VAT [he will need to get VAT receipts] on goods/services that he uses for/as part of carrying out his business, he can reclaim this. He will need to get a VAT no and show on p-work - and he needs to cost it in on any 'jobs' that he is doing/may do in future. Not everything is reclaimable by the way. He will need to look at when he is going to hit the threshold and decide if/when he should register. I'll leave it at that for time-being, in hope that 'expert' advice will pick up your thread and check back later.

mustafa_say_ving

Pros

Vat reclaimable on
Vans
Tools
it equip.

basically anything you buy from a VAT reg company that has VAT added to it.


Plus some building works you do could be on: new builds 0%, listed Buidings 0%, Barn conversions (5%...if I remember rightly)

So obviously in the VAT quarter you do these works you may find yourself in receipt of a VAT refund...or at least a lower VAT bill.

Having said that the best piece of advice I can give you, is get the best accountant you can find.


Also make sure you have 2 accounts with your Business bank 1 current & 1 Reserve(make sure it has a good interest rate)

I put any VAT & corp.Tax in our resv. A/C I never usually need it all so it provides an extra dividend end of year.


Cons
Over 64k you have to be VAT reg. ( as lglite has mentioned.......a very informative post )

kdean

Thank you very much has cleared things up for me.

harryhound

I'm well below the VAT threshold but there are a couple more quirks:

You may be eligible for a deal with HMR&C where you dont bother to add up all the piddling little bits of input tax, but just pay a percentage of your turnover, obviously something greater than 0% and less than 17.5%, depending on your trade.

Being VAT registered means you have to fully account for your car journeys rather than simple charge an allowance of 0.40 per mile.

Nomad25

Hope u don't mind me asking, but broadly, what will his type of business be?

JasonLVC

harryhound wrote: »

I'm well below the VAT threshold but there are a couple more quirks:

You may be eligible for a deal with HMR&C where you dont bother to add up all the piddling little bits of input tax, but just pay a percentage of your turnover, obviously something greater than 0% and less than 17.5%, depending on your trade.

Being VAT registered means you have to fully account for your car journeys rather than simple charge an allowance of 0.40 per mile.

Harryhound - You're referring to the flat rate scheme. You don't have to fully account for your car journeys rather than pay 40p per mile (consider the advisory fuel rates tables).

Excellent post lglite - couldn't have put it better myself.

If OP can let us know what the trade is going to be, the advice can be further tailored I'm sure.

CannyJock

Flat rate VAT scheme is well worth looking into, check which % of your turnover (gross turnover) you'll need to pay.

If you've got some initial setup costs, don't forget that you can reclaim VAT on purchases prior to registration

What you can reclaim from the period prior to VAT registration

If you keep hold of evidence such as any VAT invoices, you can generally reclaim VAT on taxable goods and services paid for before you registered for VAT. However, certain conditions must be met.
For goods that you purchased prior to registration:

• they must have been supplied to you and your business
• they must have been supplied no more than three years before registration
• you must still possess them
• you must have records showing the quantity and date you obtained them.

For services that you purchased prior to registration:

• they must have been supplied to you and your business
• they must have been supplied no more than six months before registration
• they can’t have been related to goods which you disposed of before registration
• you must have records showing a description and the date you received them.one

One option is to register, reclaim VAT then apply for flat-rate VAT.

Worked for me.

kdean

JasonLVC wrote: »

Harryhound - You're referring to the flat rate scheme. You don't have to fully account for your car journeys rather than pay 40p per mile (consider the advisory fuel rates tables).

Excellent post lglite - couldn't have put it better myself.

If OP can let us know what the trade is going to be, the advice can be further tailored I'm sure.

It is air conditioning fitting. He did it before about 6 years ago for a year but then went back to printing. Now printing is a dying trade he is trying to get out and it seems most sensible to go for something that he already knows. There is alot of work on the cards too at the moment especially with the olympics coming up. He really wants to retrain as an electrician but it is hard to get into especially when you have a family to feed and you are used to a half decent wage.