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PureShine

Charging VAT to domestic customers?



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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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Part Timer

Just ring the VAT helpline, very helpful people 

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PureShine
1 hour ago, Part Timer said:

Just ring the VAT helpline, very helpful people 

I will do. Appreciate all your help mate. Thank you

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vertigo
23 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

 

Hello Darren,

Can you expand on this?

The flat rate scheme would be 11% for the first year then 12% thereafter. 

Any VAT on capital expenditure over £2k can be reclaimed.

How do you get to 19% in your above statement?

 

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Part Timer

The 11% isn't 11% of your turnover, it's actually your turnover + VAT x 11% so that works out to be 13.2% then 14.4% the following year. 

I'll assume the balance is what he has calculated in not being able to claim back from the likes of diesel etc. 

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vertigo

Thanks for the explanation Part Timer.

It's probably safe to say that if a window cleaning business wants more than two vans on the road the flat rate system is a waste of time. Probably best to just register for VAT at the full rate. I think the flat rate system is only eligible if your turnover is under £150k.

 

 

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Part Timer
Just now, vertigo said:

Thanks for the explanation Part Timer.

It's probably safe to say that if a window cleaning business wants more than two vans on the road the flat rate system is a waste of time. Probably best to just register for VAT at the full rate. I think the flat rate system is only eligible if your turnover is under £150k.

 

 

I actually think, regarding the flat rate scheme, it's the best way to go. The time it saves you alone makes it worthwhile. 

The best way to find out is diligently go through the process of doing a VAT return. Log how long it will take you and run the fixed rate scheme in parallel. See how much each month you claim back and what is left from fixed rate and see if the 5.6% left from fixed rate is comparable. You will then know the best method for you when you have to register. 

Just checked the upper threshold is £230K

Edited by Part Timer

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Green Pro Clean Ltd

It's not a 'fixed rate' across all industries. Different industries different 'fixed rate' 

 

My.last word as it always is with matters relating to accounts.... ask an accountant.  

 

I'm just a window cleaner. 

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vertigo

Window cleaning is 11% the first year  then 12% thereafter. 

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PureShine

I read cleaning services are 16.5% on flat rate 

I read that it changed from 12% in 2016/2017

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Green Pro Clean Ltd
21 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.

 

NONE of the above bears any relevance to VAT --  VAT is based on your total TURNOVER ONLY -- there are no deductions, higher rates etc.   

 

If you start a company and VAT register before you turn over a single penny then in year 1 only do £10'000 you still pay VAT on that whole £10K    

 

I'll type in caps as I want to be clear on this - VAT IS ON YOUR TOTAL TURNOVER -- NOT TURNOVER AFTER ALLOWANCES, DEDUCTIONS ETC - THE VAT IS THE VERY FIRST THING YOU PAY ON YOUR TURNOVER - AFTER THAT YOU CAN SEE WHATS LEFT AND START TO CALCULATE WHERE ALLOWANCES ETC COME INTO EFFECT.  

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Part Timer

When I was registered it fell into the "business services not listed elsewhere" which is 12%. As I said before ring the VAT helpline and they'll talk you through it. 

1 hour ago, PureShine said:

I read cleaning services are 16.5% on flat rate 

I read that it changed from 12% in 2016/2017

Can't find Cleaning Services on the list. 

 

https://www.gov.uk/vat-flat-rate-scheme/how-much-you-pay

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Part Timer
1 minute ago, PureShine said:

Me too mate. Trust me id rather it be 12% 😀

Well if it is 16.5% then don't do Fixed Rate. Anything above 14% is a no go in my experience 

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PureShine

Im just going to go and see accountant next week cause its driving me nuts. Easiest way is just go see him, get it resolved and crack on past that threshold as fast as possible. Either way i will have to pay it so won't allow it to make me wobble in terms of my long term goals

1 minute ago, Part Timer said:

Well if it is 16.5% then don't do Fixed Rate. Anything above 14% is a no go in my experience 

I know what you mean. Iv almost set my mind now as it will be 20% vat, im prepared mentally for that and will continue to grow the customer base as planned. Anything lower than 20% is just a bonus. If i see it this way i wont feel so disheartened. I can still make good money per man per van after factoring in vat at 20%. 

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Tendering window cleaners

Going VAT registered is a material change to your normal operations, and as such, should be considered very carefully.This question only ever comes up when you start approaching the mandatory threshold, currently £85,000. When a window cleaner becomes registered, he or she will be a net contributor for as long as they are registered.It is un realistic and plain reckless to think that the input side of your weekly purchases will negate your output tax.Consider the following real life scenario...

You have a van on the road 5 days producing on average £2000 every week, the output tax on this is £334 pounds.

A typical van on this round will drink £100 in diesel, this produces £16.67 in inputs.

Paying a man £150 a day relates to £750 (no input)

Your employer (secondary) PRSI and Pension contributions will come to approx £80 pw on top of that. (no input)

On an average week, you will struggle to find any further legitimate inputs, you may on occaision incur some vatable maintenance on the vehicle, there may be the odd bit of equipment purchase however, the reality is that each week, other than the relief on the fuel purchase, you will be a net contributer.

 

So if you are hovering near to the threshold, you should consider a combination of the following, up your prices (which fuels the turnover issue) but at the same time shed any under performing customers.This results in the same earnings for what should be less work.

or

If you are on the march, there a couple of ways you can proceed in the short term.As in the former, tidy up and streamline your current round, then set up another round in your wifes name, this will be a seperate legal entity.Promote that round on the basis of quoting for jobs from the onset to include VAT. I would suggest you do not mention VAT to ordinary house holders, it complicates things, you will be shocked at how many indignant people you will un earth.As far as the forces of darkness are concerned, the second business, as long as you are not the net benificory will only have to register once that gets enough leg to produce £85k.You will of course be producing more profit as a familly and as such will find your joint liability rise.

Our vans produce on average £650 pw on five days.

 

There are no creative ways to swerve VAT, the forces of darkness have been at this game a lot longer than most and as such, know the score.They also have a secret weapon which is known as "retrospective inquiries" you do not want to be on the wrong end of one of those.

Speak to an accountant, set your business up on a solid foundation,just accept the feeling of being hard done by and crack on.

Set up and maintain a seperate VAT account from your trading account for the new round,then set up an auto transfer of your VAT content each week, do this religiously and you will never catch a cold when it comes to the quarters payment, depending on who you are banking with, if you have a mortgage, you may be able to use the vat account as an offset against your repayments, it matters a huge amount over the period of your mortgage.

Good luck

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vertigo
10 hours ago, Tendering window cleaners said:

If you are on the march, there a couple of ways you can proceed in the short term.As in the former, tidy up and streamline your current round, then set up another round in your wifes name, this will be a seperate legal entity.Promote that round on the basis of quoting for jobs from the onset to include VAT. I would suggest you do not mention VAT to ordinary house holders, it complicates things, you will be shocked at how many indignant people you will un earth.As far as the forces of darkness are concerned, the second business, as long as you are not the net benificory will only have to register once that gets enough leg to produce £85k.You will of course be producing more profit as a familly and as such will find your joint liability rise.

 

Hi,

 

Thanks for your detailed response. I agree with most of what you have said but would I would not recommend disaggregation of your window cleaning business. You would not want to have a VAT inspection a few years down the line after you have split your company. The VAT bill from HMRC could be quite alarming and the fines could be even more. Please see notes below. 

 

Of course you could argue that your wife business is totally separate to yours but would you really want to try and defend your case in court or risk losing your business if you lost and couldn't pay the VAT that was owing and the legal costs and fines?

Disaggregation, VAT and HMRC

By setting up two businesses, business owners believe they can allocate their revenue across different businesses to ensure they do not exceed the VAT registration threshold (in 2018/19 the threshold is £85,000 for an individual business). If the threshold is not exceeded, businesses don’t need to register for VAT and may have a competitive advantage.

HMRC believes this practice qualifies as tax avoidance and has set specific rules designed to ensure only legitimate ‘business splitting’ occurs. This means you must prove there is no ‘financial, economic or organisational’ link between your businesses. If you can’t provide strong evidence there are no such links, HMRC can impose penalties and/or prosecute you. Examples of the links HMRC look for when deciding whether businesses are related or not are shown below:

Financial

  • Businesses have the same bank account
  • A common business profit or financial interest that benefits both businesses
  • Financial dependency on one another.

Economic

  • Sharing equipment
  • Operating from the same offices
  • Sharing advertisements.

Organisational

  • Common employees and/or managers.

There may be legitimate reasons for splitting your business, and there can be positive indicators to HMRC that this is the case if your businesses operate with the following characteristics:

  • Separation of bank accounts and business records
  • Each business is separately registered with HMRC and submit their own tax returns.

Customers should be convinced that they are dealing with two businesses Any charges for goods and services between the split businesses must be conducted at arm’s length.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Edited by vertigo

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