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The next step?

monkeyman

Active member
Messages
395
Location
Market Harborough
So I'm maxing myself out, but work is always coming in, so I could employ some one. So I get the right person, great.I pay them a decent wage. Then I hit the VAT bracket not great. So I would be massively out of pocket. I would struggle to put my prices up 10% never mind 20%. So how do I make the step without loosing out.

 
my tip is employ someone before you burn yourself out . thats the very worst thing that can happen, burning out .

things like VAT is a small worry cos when you are overburdened with work you can jack prices up cos the inflow of work will way overcome it

 
it may be worth you starting another ltd company doing window cleaning, that takes the new custys. /emoticons/wink.png



 
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running 2 companies hardr

2 accountant bills

double books

double headache

and all to avoid vat ??? dont forget u claim backk all vat u spend

 
it may be worth you starting another ltd company doing window cleaning, that takes the new custys. /emoticons/wink.png
WRONG, if he is listed as a director of both companies (or even he one and his wife the other) the VAT man has some BS law, I forget the exact name but something like 'The amalgamation of business act' If VAT man can prove you started another company in a vain effort to dodge taxes.

Should the two companies be in similar (or the VAT mans opinion of similar industry) such as you have a window cleaning business and the wife has a office cleaning business they could link the two and say you owe vat on both.

There is no law to stop you having two totally different companies, one cleans windows the other sells lollipops, that the VAT man does not mind.

Remember VAT threshold is based on a 12 month rolling period not just the annual tax year, so for example you make 82'000 from July 2015 to may 2016 you need to stop trading for the 2016 June month otherwise you are liable.

Before you all start with 'my mate just opened another company blah blah' that is b*ll*cks, and if you mate told you that you have mates that lie to you.

Best advice is go see an accountant, they all do a free 30 minute consultation for free and they are the best situated to advise you.

 
Yes peter, you do claim back the VAT on all items you buy when you are VAT registered, but here is the consideration.

At 82'000 you are paying £16'400 per year in VAT, so to get that back in reclaims you need to be spending around £70'000 per year to even get close, dont know bout you pete but I don't buy that many squeegees.

 
also remember that anything you bought that you still have in your possesion prior to going vat reg you can claim for. an example being a van the vat you paid on purchase 2 yrs prior it might be a tidy sum you will now get back

 
diseal uniforms flyers advertising vans systems etc etc

if ur going to break the vat threshold u need to break it proper no point dikcing around the 82000 mark make it worth your while folks

you get a good accountant and he will loook after you rightly

 
i do give them out print them off excel and u just need to click print handy and gives them the payment options on the invoice and you can put down if anything owed from previious cleans

 
i do give them out print them off excel and u just need to click print handy and gives them the payment options on the invoice and you can put down if anything owed from previious cleans
I guess it's fairly straightforward once you get used to it.

 
granny johnson in the £5 bungalow would have to go realistically if youre over the vat limit. although she wont cost you money you wont be making anything from stopping better to drive past her. its a hard world

 
Sorry for the long post but Green is right that HMRC do have legislation in place to cover running two seperate businesses. There are two ways in which HMRC can attack this type of arrangement:

1) HMRC attack this under the business splitting rules, saying that there is two seperate businesses but the trades need to be aggregated for VAT purposes simmilar to as Green described above, although some take a more aggressive stance on arguing against this where for example a dometic cleaning and window cleaning company received a notice of aggregation. However, as a notice of aggregation for VAT only applies to future supplies some tax professionals advise clients this is "worth a go" as it generates a VAT saving for as long as it takes HMRC to catch up with you (this can take years or indeed never happen and there are things you can do to reduce the chances).

2) HMRC claim that there never has been two businesses at all - this is the most damaging as they can then apply retrospective VAT registration (plus interest and penalties - nice) and can go back up to 20 years!

The presence of 2 limited companies would help to defend against an HMRC enquiry leading to the second scenario above, providing they are properly run, as would the presence of an employee as this would be a valid commercial reason to operate two seperate business structures (many medium size family businesses are run this way with employees in one company and the real assets like land, cash etc in another). Anyway, to defend against a VAT enquiry claiming there never has been two seperate businesses it will need to be properly recorded as being a new business with a different name and identity, seperate bank accounts etc.

It wil be your obligation to prove that it is not just the curent business setting up a new outlet.

The new business must have its own employee and suppliers - not the existing company and its own, NEW customers.

BE VERY CAREFUL and ensure that you are proving the "arrangement" IS VALID in fact - not that you are portraying it as something that it is not.

Having different directors and shareholders, or at least their % holdings, would also assist (e.g. husband and wife arrangements with different minority holdings for the spouse not involved in running the business, or give the employee a minimal 2.5%/5% shareholding in "newco". This can also be used to incentive him/her to work by paying an annual dividend based on profits(make this their bonus).

This leaves scenario 1 - two seperate businesses both cleaning windows in the same area turning over below the VAT registration limit until HMRC catch up with you, and then in all likelyhood you would be best advised to give in gracefully and accept the notice of aggregation, so future supplies would be subject to VAT, which could happen in a few weeks, a few months a few years or never.

So is this all worthwhile? This has a doubling of accounting admin costs etc. as well as new bank account, payroll system, but if it saves you the likely net VAT bill of £10K plus per annum then maybe worth a calculated risk as long as you get very good advice on structuring to avoiding scenario 2 above as the saving on an annual basis would more than pay for the extra admin to be done by someone else if you wanted.

 
Pretty sure you do not need to provide VAT receipts to residentials only if asked, brief chat ages ago with my accountant. So long as you keep your records its all that is required.

 
That's right Trev81. You don't have to provide a receipt to everyone but do have to be able to provide a valid VAT receipt to any customer who asks for one and have to be able to provide records to prove to the taxman you have accounted for the correct amount of VAT.

Hi Monkeyman, the flat rate scheme is effective in that it reduces the admin and simplifies completing the returns but the problem with the flat rate scheme is it will give you a high% of your takings to pay (12%), so at the VAT registration limit this still costs you about £10K per year.

 

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