Registering for VAT - The Book-keepers Forum (UK)

Elaine R · Senior Member

Registering for VAT

MarkS · Expert

Unfortunately thats the rules, when you exceed the VAT threshold you need to register for VAT so if you deal with the general public or nonVAT registered businesses then you either have to add 20% onto the price or take a hit for the VAT yourself.

A lot of people intentionally trade just below the VAT threshold to avoid this issue.

abacus12345 · Guru

Vat 701/45 may, or may not help you here.

Cheshire · Master Book-keeper

Elaine R wrote:
Hi,
I have a client who is nearing the VAT threshold. Before I go ahead and register him I wanted to ask if there are any businesses that don't need to register for VAT. Never heard of any - even registered charities have to when they are at threshold.
I think in his case he has no choice. He is a coach with a franchise sports business which also sells rugby shirts.
He is also at the point where he now needs to become limited as he is currently a sole trader. What is the decision driver in this case?
My worry is his fees are going to increase and it may put people off.

-- Edited by Shamus on Wednesday 23rd of March 2016 09:15:07 PM

Leger · Master Book-keeper

Hi Elaine

If he is already looking at going Ltd and there are genuine reasons for doing so, a side affect of that would be that the Ltd Company would have to get to the threshold before registering for VAT.

Elaine R · Senior Member

I had a quick look on HMRC site and I think he comes under sports so may not have to register however I will check with HMRC direct to make sure.

I hate VAT! It's a minefield.

Shamus · Forum Moderator & Expert

Hi Elaine,

From the earlier description it would seem to me that not all of your clients supplies are exempt supplies so they may still need to register for VAT .

I assume that the HMRC guidance that you were referring to is 701/45. If so note that it is talking about services where your client also supplies goods (clothing).

If the bulk of your clients sales are exempt it may be beneficial to register for VAT even if they are well below the limit so that they are able to reclaim VAT on expenditure without needing to load their service sales by 20%.

Cheshire · Master Book-keeper

Would need to be an 'eligible body' for the 'sports' angle to cover him. If he is in business to make a profit then that will not apply.

If you check with HMRC I would go for the written angle rather than believe what you hear on the phone - they have been shown to give 'duff' advice - evidenced by the many comments on AWeb if you havent had first hand experience of hearing it yourself. (Ive been told some right corkers!)

abacus12345 · Guru

Yeah, not wise to take accountancy advise from HMRC, unless it is in black and white, even then.... I'd still definitely call them though on this one. The business you represent may have grounds to be exempt. Probably unlikely mind - there is a slight hope. What about, if they are liable, the suggestion of the FRS. Obviously you'd have to do the sums.

Cheshire · Master Book-keeper

Or dropping part of the business to stay under the threshold

abacus12345 · Guru

Very true. If the shirts would be 0% rated as they are for children, that's that solved, no extra charge for parents there. I do in my opinion believe this venture to be exempt. Please obviously don't take my word for mind.

Cheshire · Master Book-keeper

But I took the 'being in business' comment as he was achieving a profit therefore would be ineligible.

Cheshire · Master Book-keeper

Does he sell other products as well as the shirts?

-- Edited by Cheshire on Wednesday 23rd of March 2016 06:52:55 PM

abacus12345 · Guru

Ok so this is a franchise and not a charitable gig. That's probably changed everything. Would you post an update from HMRC Elaine after you have called them please? The shop to the franchise sells all manner of goods so I'd assume your guy sells the same?

-- Edited by Shamus on Wednesday 23rd of March 2016 09:16:27 PM

Shamus · Forum Moderator & Expert

Do we really want to be saying who our clients are on an open forum? This could easily be traced back by the client or the franchisor to Elaine and I am sure that they would not be happy with the questions being asked here.

To protect Elain I'm just going to go through and remove the franschise name from the thread.

Shamus · Forum Moderator & Expert

All done, think that I got them all.

Cheshire · Master Book-keeper

Given it's a franchise, Shaun's point about vat reclaim is a good one as most franchises charges rather high fees and therefore chunky amounts of VAT.

Am surprised that the Franchisor doesn't provide the advice required on the VAT issue.

Cheshire · Master Book-keeper

Shamus wrote:
All done, think that I got them all.

The best move....looks like you have them all.

Elaine R · Senior Member

Bloody Hell I am getting lost in all of this now.

He is in business to make a profit and is doing so. Getting busier every year.

Trading as a Sole Trader but had quite a big tax bill last year so we did discuss briefly going to limited.

I am more concerned with the VAT element at the moment and feel more lost than ever now.

I may ask him to speak to the Franchisor for advice and see what they come up with.

The sale of Shirts only come to 6% of overall sales so not a great deal.

Cheshire · Master Book-keeper

Hi Elaine
In some ways your route is easy, in that he is not exempt from registering for Vat based on your initial sports angle as he is not an eligible business.

So, he has a few options, keep below the threshold.....easy, just turn down the business to keep his turnover lower. Sounds like it's probably not an option.

Consider the flat rate scheme as Johnny suggests.....you can work out if that would be worth it based on his historic figures v. Standard vat.

On the shirt front, children's as Johnny says are vat free! but if he also sells adult sizes plus any other items would be at standard vat.

The question of becoming ltd is still to be considered. You can also do some working on that. Are there other reasons for incorporation?

Shamus · Forum Moderator & Expert

-- Edited by Shamus on Wednesday 23rd of March 2016 10:38:35 PM

TaxAdviser · Veteran Member

Elaine - Please reread Leger's message from last night re the VAT reg threshold resetting to zero for a Ltd Co. Find out what the other franchisees do, are they Ltd and VAT registered etc. Prob not on FRS as high fees to franchisor.

-- Edited by Shamus on Wednesday 23rd of March 2016 10:39:52 PM

Cheshire · Master Book-keeper

TaxAdviser wrote:
Elaine - Please reread Leger's message from last night re the VAT reg threshold resetting to zero for a Ltd Co. Find out what the other franchisees do, are they Ltd and VAT registered etc. Prob not on FRS as high fees to franchisor.

I've tried twice to ascertain the reasons for move to limited, before I post with some further information on the back of Johns response From last night.

abacus12345 · Guru

Mark and Joanne both mentioned staying under the threshold earlier, by restricting business, (Neither actually said that word for word, forgive me) there could be a hidden saving in that in a sense- clubs of all types are only allowed to hold x amount of people at a time, by continuing to grow past the VAT line is it worth it? Say an extra 10 children take you to the legal limit, space wise, yet those 10 extra are forcing you in increase invoices by 20%. Less can be more sometimes. Obviously a bigger venue could be found, yet that creates it's own extra overheads

Cheshire · Master Book-keeper

www.accountingweb.co.uk/anyanswers/question/vat-registration-23

Shamus · Forum Moderator & Expert

Everyone just stop for a minute as we're building a house on a swamp here.

Everything that we are saying goes back to a statement early on in the thread that the supply is exempt.

I did question whether that had been checked against 701/45 but I was busy and didn't check it myself.

I need to review the legitimacy of the statement about supplies being exempt and then decide whether we need to fix this thread before continuing.

Posts may change.

Shamus · Forum Moderator & Expert

Ok, I'm back.

my sincerest appologies, I did not check some information given above out before I ran with it. Start again.

These are not exempt supplies.

If you refer to 701/45 it states in section 3.1 that all conditions must be met. One of those conditions (4) states that exemption is only available to an eligible body. To be eligible it refers the reader on to section 4 which states :

it is non-profit making
its constitution includes a non-distribution clause or limits any distribution of profits or surpluses to
another non-profit making club or
its members on winding up or dissolution
it actually uses all profits or surpluses from its playing activities to maintain or improve the related facilities or for the purposes of a non-profit making body
it is not subject to commercial influence nor part of a wider commercial undertaking

The business in question is a franchise which is a profit making concern therefore it is not exempt.

I have removed my earlier post that depended upon that being the case and have also amended Hannah's post that referred to my post which was based on the eroneous assumptions.

abacus12345 · Guru

Shaun I had already amended my statement in my post whereby I had discovered the club was a franchise, not a not for profit / charity. I also made it clear in my initial posts, not to take my advice without calling HMRC for clarification.

Cheshire · Master Book-keeper

Cheshire wrote:
Would need to be an 'eligible body' for the 'sports' angle to cover him. If he is in business to make a profit then that will not apply.

If you check with HMRC I would go for the written angle rather than believe what you hear on the phone - they have been shown to give 'duff' advice - evidenced by the many comments on AWeb if you havent had first hand experience of hearing it yourself. (Ive been told some right corkers!)

I mentioned the eligible bit quite a bit ago.

Leger · Master Book-keeper

The key issue now is whether it's better to register for VAT anyway. If there is VAT to pay on the franchise costs that might result in a regular refund, as Shaun pointed out upthread.

Elaine, have a look at the effect VAT would have on taxable supplies (childrens shirts wouldn't have an effect) then look at the VAT that can be reclaimed on expenses, in particular on the franchise fees.

Slightly amended shirt sales to taxable supplies just in case there are other taxable supplies

-- Edited by Leger on Wednesday 23rd of March 2016 11:16:03 PM

Shamus · Forum Moderator & Expert

Hi Johnny,

worry not, it wasn't your post that I was referring to and I only blame myself for my mistake, not the post that I took as a statement of fact.

Generally I check and recheck everything before posting replies on the site but tonight I was multiprocessing and took as red a statement above that these were exempt supplies which meant that my answer was based on incorrect assumptions.

Whats the old saying, he who never makes mistakes never does anything!

I'll try not to make a habit of it though.

Cheshire · Master Book-keeper

I reckon the confusion earlier was just a misread. (was it my use of the word exempt?, although I was meaning he isn't exempt from registering.)

Elaine, if you read the Vat guide that was cited earlier, in it's entirety you will see that your client doesn't qualify as eligible. That at least covers your first question and will save you an hour hanging on the phone to get a numpty response from HMRC.

-- Edited by Cheshire on Wednesday 23rd of March 2016 11:21:24 PM

abacus12345 · Guru

What if the subscriptions are paid with bitcoins.....lol

Cheshire · Master Book-keeper

My plan is working mwahhaha

abacus12345 · Guru

Lol!!!

RobH · Expert

Shamus wrote:
If the bulk of your clients sales are exempt it may be beneficial to register for VAT even if they are well below the limit so that they are able to reclaim VAT on expenditure without needing to load their service sales by 20%.

Hi all, coming to this thread late and obviously there have been some confusion and editing and maybe the above has been missed but I believe volunteering to register for vat when most sales are exempt from vat in order to reclaim input tax won't work (subject to a de minimis), you are in the realms of partial exemption and so there is no claim on the input tax on any purchases relating soley to the exempt sales and you could only claim on the 'shared' inputs in the proportion of standard sales and exempt sales.

Shamus · Forum Moderator & Expert

Hi Rob,

quite, I phrased that poorly but the principle that I was going for was that if the bulk of one's sales are exempt then being VAT registered will not mean increasing fee's.

What didn't come accross properly was that I was reading it that there was still sufficient non exempt sales.

As it turned out I had accepted that the sales were exempt without checking it out but on review it transpired that one of the basic concepts of the thread was flawed so I needed to do a quick overhaul last night.

We are now back to the bulk (if any) of sales not being exempt so registering if one does not need to would mean either taking the hit or increasing prices by the VAT.

I don't know the sort of amounts being passed back to the franchisor so the bookkeeper / accountant would need to use the figures at their disposal to run simulations to determine the best approach for the client.

Certainly even if the client does not need to register yet I do not think that it should simply be written off due to adding complexity but rather model the scenario and then present that to the client who needs to be the one who makes the final decision (if registration is not compulsory).

RobH · Expert

I see what you are saying Shaun, I had read it as if suggesting you could reclaim the vat on all expenditure.