I have a client who is dangerously close to the VAT threshold. His business is within the service industry and mainly to private individuals so it would be of obvious disadvantage to him being registered.
We have discussed regular forecasting with the idea of purposefully trading just below the threshold and I have also discussed the possibility of actively seeking out work more within the commercial sector with the idea of attracting more VAT registered businesses who would be happy to pay the increased price.
Would anyone have any other (purely legal!) ideas of avoiding registration. I wondered if there was any way of seperating some part of the business and trading under a new business. Is this possible?
Any ideas or experiences would be appreciated
Thanks
Valerie
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seperation to avoid VAT registration os a false seperation which would result in HMRC regarding the two businesses as one. They would take any payments as being VAT inclusive and demand their 20%. They would also impose fines, penalties and surcharges plus come down on the advisor like a ton of bricks for.... Short answer. Don't even think about that route.
For your client if there is more business than they can handle thn raising their prices by 20% will get rid of the smaller businesses allowing them to concentrate on the larger one's where more money is and more clients are likely to be VAT registered.
They might also want to look at their existing client businesses and consider whether some of them might benefit themselves from volutntary registration which would annul the effect of your client needing to register to grow their business.
just a couple of suggestions,
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
In this situation, the client is a plumber fitting bathrooms to mostly private homes, hence the fact that they will probably not pay an increase of 20%.
I think the only solution is to forecast regularly and monitor closely while trying to grow the business in a different direction.
Thanks for the advice
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After speaking to him today. A large proportion of his business is whole bathrooms with minimum repair work etc.
One option we suggested was for clients to actually purchase their own bathroom sets which would then mean he only invoiced for mostly labour bringing down his income. However, with his high level of purchases, I am actually beginning to think that it would be more beneficial to him to register. It is possible he will lose some business but I think the money he could reclaim would actually outweigh this.
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Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Hi Valerie
I was a little confused as, from your initial post, I thought he was worried about a price increase because the clients might be all repeat business ones so if he implemented a price increase then quite a few might drop away, but with this one he should easily be able to increase his prices or have a combo of part increase/part absorption - his new customers would be none the wiser. Timing might be an issue if he has a pile of adverts out there with prices on but with a little forward planning that can be managed.
I know from having had several clients in the kitchen/bathroom trade that the margins are usually pretty healthy (and they have all charged VAT and made some good profits). Now it may be that he has been winning a lot of work due to the non VAT element but the good thing about bathroom supply is that there is generally a cheaper supplier that he can buy his stock from, without compromising too much on quality (they are falling over each other to get the business from what Ive seen - their are always hoards of regional sales reps popping in trying to get them to stock their items!) and the good thing is that a customer cannot easily compare like with like.
Might be worth having a further chat with him as what his perception of such a price increase will do, plus take along some numbers showing what his margins are now and eg the impact of him having absorbed the VAT over the last quarter. Doe she track the margins on a per job basis? Might just be worth having a play with the last couple.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Thanks for the advice. I think the initial concerns were more mine than his really. Having looked at it sensibly, he has really good customer satisfaction. He should have no problem with the price increase and for the odd job he loses to someone with a lower quote he will gain from the VAT he reclaims.
It really helps to be able to put thoughts down in black and white on this forum. I really do appreciate being able to chat things through.
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Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
