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PureShine

Charging VAT to domestic customers?



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PureShine

I'm not far away from VAT threshold now and am wondering how others have managed this in regards to domestic customers? Did you add the charge onto existing customers or just take the hit on the chin?

VAT is the one thing that is putting me off pushing growth as I don't want to charge it to customers for fear of losing loads of them, but also not wanting to have to cough up out of potentially what could be my own takings. Any ideas/advice appreciated.

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Daniel Perkins

I am commercial and went VAT regged recently enough, tedious process I must say and some will not like it that is a fact. I've lost 2 customers since VAT and one was a big name retailer but I will get 4k back off the van I bought and i'll claim back as much as I can on other things. Rate is 13.5% over here, could you up your prices and eat the VAT? I could see some domestic customers having issue with paying it to be honest here in Ireland.

Edited by Daniel Perkins

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solarpanelcleaningltd

What I did was put all prices up 5%. Then took the hit. I saw it coming 6 months ahead, so all the jobs quoted in that period were priced with vat in mind.

You can find efficiencies elsewhere to compensate for it.

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PureShine
4 hours ago, Daniel Perkins said:

I am commercial and went VAT regged recently enough, tedious process I must say and some will not like it that is a fact. I've lost 2 customers since VAT and one was a big name retailer but I will get 4k back off the van I bought and i'll claim back as much as I can on other things. Rate is 13.5% over here, could you up your prices and eat the VAT? I could see some domestic customers having issue with paying it to be honest here in Ireland.

My commercial customers wont have an issue with this. Its the domestic side of the round that bothers me as i think i will lose quite a lot of customers. I think its 16.5% on net turnover here for cleaning services or 15% flat rate on gross turnover but then cant claim any vat back.

 

3 hours ago, solarpanelcleaningltd said:

What I did was put all prices up 5%. Then took the hit. I saw it coming 6 months ahead, so all the jobs quoted in that period were priced with vat in mind.

You can find efficiencies elsewhere to compensate for it.

I have thought about this, even putting the prices up by £1 or £2 will help. I am going to start pricing this way with all new custys, its the drop off from the current ones that bothers me.

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solarpanelcleaningltd

You can claw back vat on previous purchases (3 years?? Can’t remember) of non consumable stuff. That may go a way to helping negate the initial hit.

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PureShine

sounds good to me. I appreciate the info 

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Part Timer

If you intend to do the VAT yourself look at the Fixed Rate Scheme, personally believe you make a profit on it and it saves you loads of time and hassle. 

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PureShine
2 hours ago, solarpanelcleaningltd said:

https://www.gov.uk/vat-registration/purchases-made-before-registration

 

 

gotta make up the word count thing is this enough?

Good to know i can claim back for all eligible purchases while i havent been registered then.

 

Im looking at this almost as if once the threshold is reached you basically need to blast past it very quickly. 

1 hour ago, Part Timer said:

If you intend to do the VAT yourself look at the Fixed Rate Scheme, personally believe you make a profit on it and it saves you loads of time and hassle. 

I have been looking into this but have been reading that on flat rate you are unable to claim vat back on goods/services. Many people have said this is a good way. If i could charge 20% vat to the customer then pay the fixed rate it may bring a profit, but i dont feel i can charge the vat to a domestic customer

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Part Timer
22 minutes ago, PureShine said:

I have been looking into this but have been reading that on flat rate you are unable to claim vat back on goods/services. Many people have said this is a good way. If i could charge 20% vat to the customer then pay the fixed rate it may bring a profit, but i dont feel i can charge the vat to a domestic customer

Well if you do hit the threshold you will either have to register or sell off some work. If you do go VAT registered you will need to grow your business some more to take the hit yourself. At the end of the day if you do go VAT registered it will be best. in my opinion, to do it using the Fixed Rate Scheme. Remember when first registering you can chose one or the other. If you chose the Fixed Rate and don't like it you can change to the normal VAT method. However if you chose the normal method then find out Fixed Rate is better you can't change to it.

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PureShine
9 minutes ago, Part Timer said:

Well if you do hit the threshold you will either have to register or sell off some work. If you do go VAT registered you will need to grow your business some more to take the hit yourself. At the end of the day if you do go VAT registered it will be best. in my opinion, to do it using the Fixed Rate Scheme. Remember when first registering you can chose one or the other. If you chose the Fixed Rate and don't like it you can change to the normal VAT method. However if you chose the normal method then find out Fixed Rate is better you can't change to it.

I didn't realise you could change from fixed to normal but not the other way round. I think i will give the fixed a try first and from what youve said it doesn't sound too bad either. I spoke to accounant not long ago and he advised i split my work into different businesses so none of them will ever reach vat threshold, he advised each time one business nears the vat threshold i open a new business and sell work from the one to the other, reducing turnover. I looked into this as it didnt feel right... im glad i done my homework as this is clear tax avoidance and definitely not legit

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Part Timer
18 minutes ago, PureShine said:

I didn't realise you could change from fixed to normal but not the other way round. I think i will give the fixed a try first and from what youve said it doesn't sound too bad either

You better get this clarified as this rule applied 12 years ago so might have changed. You can set up a Limited Company and get them to buy work from you as a sole trader, you can't do it twice though. Again clarify the above but my Accountant said it was 100% legit.

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PureShine

Im already set up as Ltd. The accountant wasnt saying to do this once, he was suggesting I continually transfer work to different new companies i set up. Each time i get close to threshold open a new company and put all the new work on that company so none of them will ever hit vat limit.

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Part Timer

Then you could possibly set up as a sole trader. I was told that as long as it's a different type of business you can do it legally 

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solarpanelcleaningltd
2 hours ago, PureShine said:

I didn't realise you could change from fixed to normal but not the other way round. I think i will give the fixed a try first and from what youve said it doesn't sound too bad either. I spoke to accounant not long ago and he advised i split my work into different businesses so none of them will ever reach vat threshold, he advised each time one business nears the vat threshold i open a new business and sell work from the one to the other, reducing turnover. I looked into this as it didnt feel right... im glad i done my homework as this is clear tax avoidance and definitely not legit

 

 

Don’t do it!!!! HMRC will not approve.

 

Change your accountant sharpish.

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Part Timer

As long as it's a different entity my Chartered Accountant said it's perfectly legal. But as I said get it checked and in writing. 

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PureShine

I will speak to a different accountant and see if they say its legit. The first one says it can be done

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PureShine
35 minutes ago, solarpanelcleaningltd said:

 

 

Don’t do it!!!! HMRC will not approve.

 

Change your accountant sharpish.

From all the things I am reading so far it basically seems even though they may be separate enities, separate accounts, staff, phone numbers etc they have a common interest so the hmrc would deem the turnover over of both entities be classed as one turnover. Also there are fines on top. It just seems dodgy and makes me feel unsettled. I will still see a different accountant, will ask the question out of interest wether it can be legitimately done. Either way i think im just going to up current customers prices by 10% and take the hit on the remaining amount. Whatever new work comes in will be priced at 20% vat on top regardless. Whatever i lose i will replace and that be that. Im really not prepared to take the full amount out of my own pocket. 

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solarpanelcleaningltd

don’t forget the time it’ll take you to process the vat returns. You have to charge for that too!

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Part Timer
7 minutes ago, solarpanelcleaningltd said:

don’t forget the time it’ll take you to process the vat returns. You have to charge for that too!

The Fixed Rate Scheme takes 10 minutes a quarter, assuming you're on top of your paperwork

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PureShine
4 hours ago, solarpanelcleaningltd said:

don’t forget the time it’ll take you to process the vat returns. You have to charge for that too!

How do you mean? I thought the accountant would deal with all of that, or is it something I have to do?

4 hours ago, Part Timer said:

The Fixed Rate Scheme takes 10 minutes a quarter, assuming you're on top of your paperwork

I am on the ball with paperwork. I'm quite certain now that I will be going on flat rate when the time for registering comes. I don't make lots of purchases and always try to spend only what i need to make working days easier so won't have much to claim back.

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Green Pro Clean Ltd
On 06/02/2019 at 15:42, Part Timer said:

If you intend to do the VAT yourself look at the Fixed Rate Scheme, personally believe you make a profit on it and it saves you loads of time and hassle. 

 

Fixed rate scheme is now almost a waste of time works out that you're still paying the government about 19% so you're only making 1% 1% is better than no percent but it's hardly worth the effort. When you go VAT registered and you need to either have the customers take the price and put up 20% or take the hit yourself the difference between your earnings and it won't be all fully clear is £102,000 full stop what I mean by that is you have to jump from £85,000 to £102,000 before you offset the difference in your takings caused by VAT. Hope that's a clear

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Part Timer
3 hours ago, Green Pro Clean Ltd said:

 

Fixed rate scheme is now almost a waste of time works out that you're still paying the government about 19% so you're only making 1%

As I said you make a profit, my experience was you made more than 1%, but I'm not pushing that benefit. We spend money trying to find ways in saving us time doing our job, cleaning windows, being a business owner / sole trader isn't it also important to save time in the office if you can, as time is money. On the fixed rate scheme you log in to your account fill in 6 boxes, I recall, and press send. Rather than logging every expense and every invoice, now I don't know how long that takes but I would've thought it would be hours rather than a few minutes. Put in the same position again, having to be VAT registered, even if it cost me money I would still chose the flat rate scheme. Each to their own.

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PureShine
5 hours ago, Green Pro Clean Ltd said:

 

Fixed rate scheme is now almost a waste of time works out that you're still paying the government about 19% so you're only making 1% 1% is better than no percent but it's hardly worth the effort. When you go VAT registered and you need to either have the customers take the price and put up 20% or take the hit yourself the difference between your earnings and it won't be all fully clear is £102,000 full stop what I mean by that is you have to jump from £85,000 to £102,000 before you offset the difference in your takings caused by VAT. Hope that's a clear

I've decided to up customers by 10% and take the remaining hit. Whatever amount of customers I lose I will replace. All new customers from now will be charged at higher price, i know this may mean i win a few less custys but overall will see more profit. Id rather have a smaller number of vans turning over a better profit rather than double the vans with a lower profit. Im not fussed about turnover, profit is what everyone is interested in. I can tell from some of your videos and posts on here that you know theres no point being a busy fool. The getting from 85k to 102k will be a bit of a pita but from then on I think the vat wont hurt as much. Its just the initial hit that will be a ball ache. By the looks of it standard rate is better if i have lots of expenditure on equipment, new vans etc which i dont. 

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Part Timer
18 minutes ago, PureShine said:

By the looks of it standard rate is better if i have lots of expenditure on equipment, new vans etc which i dont. 

Again check up on this, I believe any capital expenditure over £3k you can still claim the VAT back when you're on the fixed rate. Now I don't know if this is off any one item, 74' pole, or if it's off any 1 invoice, say if you bought a £1200 gutter vac, £1500 poles and cameras etc and the total invoice was over £3k

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lloyd323

This is very interesting to me also as i believe at the end of the year i would have reached the threshold for VAT. As pure shine says it is preventing me from further growth in the future. My knowldge about this is very minimal and i don't fully understand it. Please correct me if i'm wrong:

 

You pay this below after Net profit

 

 

 

 

 

 

 

 

 

Personal Allowance

Up to £11,850

0%

Basic rate

£11,851 to £46,350

20%

Higher rate

£46,351 to £150,000

40%                                                                    

     
    Now this is the part i'm unsure of but i think i got it - if i register VAT, you have to charge an extra 20% on every single service you provide as well as paying your normal 20 or 40% (dependant what your expenses are)  tax rate? So effectively i could be paying 40% Higher tax rate as well as 20% VAT for each service i provide? 60% in total! Thanks.

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Minty
44 minutes ago, lloyd323 said:

This is very interesting to me also as i believe at the end of the year i would have reached the threshold for VAT. As pure shine says it is preventing me from further growth in the future. My knowldge about this is very minimal and i don't fully understand it. Please correct me if i'm wrong:

 

You pay this below after Net profit

 

 

 

 

 

 

 

 

 

Personal Allowance

 

Up to £11,850

 

0%

 

Basic rate

 

£11,851 to £46,350

 

20%

 

Higher rate

 

£46,351 to £150,000

 

40%                                                                    

     
    Now this is the part i'm unsure of but i think i got it - if i register VAT, you have to charge an extra 20% on every single service you provide as well as paying your normal 20 or 40% (dependant what your expenses are)  tax rate? So effectively i could be paying 40% Higher tax rate as well as 20% VAT for each service i provide? 60% in total! Thanks.

Your confusing personal tax with vat. 

You have to charge Vat On top of your price/invoice when the threshold is met. The vat you charge/collect is then paid to the taxman quarterly. Vat is based on your turnover 

 

Edited by Minty

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Part Timer

VAT is basically a tax on your customers, if you can fully transfer the 20% to them and they're not in a position to claim it back, i.e. they're not VAT registered. If you currently charge £15 to clean their windows, then go VAT registered you will have to charge them £15 + £3 VAT, £18. If you don't up there prices then the £15 charge breaks down to £12.50 + £2.50 VAT so you're now cleaning their windows for £12.50 nett. This is the conundrum you will face, the VAT you have to pay the Government is what you have charged to your customers so if you've managed to pass the charge on then you will be better off, you can reclaim the VAT back from your expenses, diesel, poles etc. If you can't pass the full amount of VAT on, what the OP was concerned about, then yes effectively it's an additional tax you will have to pay.   

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lloyd323
1 hour ago, Minty said:

Your confusing personal tax with vat. 

You have to charge Vat On top of your price/invoice when the threshold is met. The vat you charge/collect is then paid to the taxman quarterly. Vat is based on your turnover 

 

 

1 hour ago, Part Timer said:

VAT is basically a tax on your customers, if you can fully transfer the 20% to them and they're not in a position to claim it back, i.e. they're not VAT registered. If you currently charge £15 to clean their windows, then go VAT registered you will have to charge them £15 + £3 VAT, £18. If you don't up there prices then the £15 charge breaks down to £12.50 + £2.50 VAT so you're now cleaning their windows for £12.50 nett. This is the conundrum you will face, the VAT you have to pay the Government is what you have charged to your customers so if you've managed to pass the charge on then you will be better off, you can reclaim the VAT back from your expenses, diesel, poles etc. If you can't pass the full amount of VAT on, what the OP was concerned about, then yes effectively it's an additional tax you will have to pay.   

 

 

Thanks guys. Yes that's how i thought it worked, the way i worded it probably didn't help. Kind of put a damper on future plans. Looks like price increases in quotes from now on. Not entirely sure how much higher i can push and get away with it, we will see.

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PureShine
8 hours ago, Part Timer said:

Again check up on this, I believe any capital expenditure over £3k you can still claim the VAT back when you're on the fixed rate. Now I don't know if this is off any one item, 74' pole, or if it's off any 1 invoice, say if you bought a £1200 gutter vac, £1500 poles and cameras etc and the total invoice was over £3k

Im so confused. Im going to see a different accountant to the last one and run all this past him. Whatever will be will be. I appreciate all the suggestions/info you guys have given me. Much appreciated 👍

7 hours ago, lloyd323 said:

This is very interesting to me also as i believe at the end of the year i would have reached the threshold for VAT. As pure shine says it is preventing me from further growth in the future. My knowldge about this is very minimal and i don't fully understand it. Please correct me if i'm wrong:

 

You pay this below after Net profit

 

 

 

 

 

 

 

 

 

Personal Allowance

 

Up to £11,850

 

0%

 

Basic rate

 

£11,851 to £46,350

 

20%

 

Higher rate

 

£46,351 to £150,000

 

40%                                                                    

     
    Now this is the part i'm unsure of but i think i got it - if i register VAT, you have to charge an extra 20% on every single service you provide as well as paying your normal 20 or 40% (dependant what your expenses are)  tax rate? So effectively i could be paying 40% Higher tax rate as well as 20% VAT for each service i provide? 60% in total! Thanks.

You could always pay yourself a smaller salary and pay the remainder as a dividend, will help lower your personal tax

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