various questions on VAT and such

[confused]

Hi all, very useful place I found here! I'll pop over to the intro forum in a while, in the meantime, I have several questions to which I'm hoping someone can offer me some pointers.

I was recently (6 months ago) made redundant, a friend of mine has had a succesful family business for 20 yrs which is a ltd company. He had some space in an available unit of his, and I setup almost immediatly. The work I do is IT, both pc repairs for home users, and network dedsign/installation for companies. I put out leaflets, ads in paper etc and things are slowly picking up. Most parts are ordered through my friends existing trade accounts (he also opened a few new ones under his comany name for me to use). Some repairs come in through his existing shop front (the shop is not the main business but still part and parcel) , some jobs I go out to.
If a job comes in through the shop, I do the repairs etc, any parts that are ordered (from his existing trade accounts) have VAT and profit added, then the total plus my labour charge is charged to the customer through the shop. At the end of each week, i submit an invoice to the shop, minus a "commission" for example, a pc repair needs a spare part, the part costs £10 trade. My labour charge is £20. Customer gets charged £10 +VAT + profit (say this comes to £15) so they pay £35 total. At the end of each week, I submit an invoice for my work + 1/2 the profit minus a small comission, so in this case I would submit an invoice for £20 labour + £1.62 (1/2 of the £3.25 profit) minus £5 comission = total of £13.38.
Now while that probably sounds a bit complicated, it actutally works very well.
If I go out on a job, then any parts needed are again ordered through my friends business, he then invoices me for the parts + VAT + small profit, I pay him. I charge the customer for my time, plus parts + a bit of profit for me.
Now hopefully thats making sense so here come the questions!

1 What do I do with this money I make ? Do I need to pay any sort of tax/vat/whatever? VAT has already been payed on the parts. does the money I make NEED VAT paying on it ? A lot of the call outs are home users, who basically couldnt care less if it includes VAT or not, they get their pc fixed and they pay me. The small companies I have worked for were the same, they gave me a cheque for the total amount, I banked the cheques but I need to be doing things "properly"
If a company requires VAT reciepts, my friend is happy to put an invoice to the company, then me invoice him, I dont like this idea, I'm sure its legit or he wouldnt offer to do it, but it looks unprofessional and decidedly dodgy if you give someone an invoice for your work but the invoice has another companies name on it, to this end, should I really be looking at being VAT registered?

2 At the moment, I'm not run off my feet with work, and any money I make sort of gets combined with whats left of my own money, I dont have a seperate bank account or anything, if I need to say pay for an advert, or get some more leaflets printed, this all comes out of the same pot, as does my weekly shopping! I would ideally like to split this, and pay myself a weekly wage, keeping the rest in the business, but what if I have a quiet week and cant afford to pay myself properly?

3 I am using my car to travel to customers, I have heard that it might be possible to claim some VAT back? is this true? (I'm also in the process of trying to get my car insured for business purposes, still shopping around, can I claim anything on this?)

4. I have some equipment that I have moved to the business premises that was my own, once the business picks up and is totally seperate financially from my bank, can I "sell" these items to the business ? and likewise, if I purchase anything equipment, stationary etc, can I claim anything back?

I think that covers my initial questions! Hopefully someone is bored and will have a read through!

Thanks

[Jayne]

Hi and welcome :D

Totally got lost half way through :lol:

Alpha should be along soon, he'll be able to give you and answer :D

Jayne

[Pilfo]

Hi Confused,

I think the first thing that you need to understand is, what VAT actually is.

Your friend should have already paid VAT on the parts that are ordered via his existing trade account/s.

However, neither you nor your friend can charge customers VAT on a product/service, unless you are VAT registered yourself, and you cannot charge VAT twice.

Furthermore, if you then don't charge your customers VAT, surely you are losing out!

You don't pay VAT on the "money that you make".

You can only claim the VAT portion back on petrol/diesel etc., if you are VAT registered.

Pilfo

[confused]

Thanks for the replies,

He does pay VAT on the parts. So basically, if Im not VAT registered, what I earn is mine to keep ? I dont have to pay anyone anything? if say I buy parts, either through my friend, or in case of an urgent part needed, from a local shop, then I can simply resell this to the customer, and charge the customer for this part and my services, and since VAT has already been payed for the part, I basically "do what I want" with the money? Why dont I have to "give" any of it to the tax man, I'm surely missing the point here somewhere ! does anyone have any links at all where I can read up, the ones I found on various government sites may as well be writtin in a foreign language.

Thanks

[Pilfo]

Hi Confused (I think you still are!)

VAT is entirely separate from Income Tax.

Visit www.hmce.gov.uk for more information.

Pilfo

[hunny]

Hi,
I'm sure there'll be someone along shortly that knows a lot more than me, but basically, the VAT question has been answered, if you are not registered for VAT then you don't charge or claim it back.
Any profit you make (turnover minus any deductable business expenses/payments) will be liable to income tax.
If you are now trading as self employed (sole trader or partner) then you should have registered with the inland revenue - I think within 3 months of start up - this is compulsary.
Try also your local business link :D - although I've found this forum much more useful. :D :D
Hope this helps a little.
Anne

[confused]

Thanks,

I'm currently reading the above posted website (could be some time yet...) The VAT issue is pretty clear now, I'm not VAT registered, I'm still unsure as to all the pro's and cons', but it seems to me it would be an advantage if I were VAT registered. I have heard the 3 month registration rule before, and will be registering very soon so as to avoid a fine !!

Thanks

[ink4-u]

Hello im Jay
Everyone is right you don’t have to charge VAT and you already pay it. Unless you are making at least 48K per year then you don’t have to be VAT registered. However it is optional if you don’t make that much you ca n decide to register, personally I think as you are so new it is more trouble doing it than it is worth to you at the moment. But im saying at the moment.

TAX is something else, you have to pay this. However i find this more complicating than VAT. So if I loose you any where here get back to me and I will try a bit better to explain. You have to register for TAX even if you are making £1! Just give the Inland Revenue a call and they will be able to get the forms to you, just register as a sole trader for now. Keep a very simple book of what you do, if you need any examples i have lots i use Microsoft Excel as it is very easy. Then at the end of the year you just total all your cost and all your profit separately. Then minus the cost from the profit. If you have made more than (I think its) £4800.00 profit then you have to pay TAX but if you make less then you don’t pay a thing. But you still need to register. Another thing to mention is National Insurance, if you aren’t making that much yet then you can register to be exempt from that as I did when I started, but i found that it is much better to pay it. I don’t know you age so I can’t really comment but its only about £2.85 per week for me. But im very young!

Another thing to maybe think about much later on is getting a company number and registering with companies house, it does have its advantages as well it can be an utter pain.

If you need any more answers PM me or add me on MSN im happy to talk. Do you have terms and conditions and a privacy policy they are all requirements now no matter what you do.

[Hayles]

Hi confused,

By learning from bad experience, I'd really, really recommend you speak to an accountant now! Once you've been trading a while, it's so much more difficult to get your accounts right.

Speak to a good accountant - I don't think they'll charge you for the initial consultation, it'll help you and save you money and aggro in the long term

Hayles

[confused]

Hi,

Thanks for all the info, it has been a great help, I think its all making sense now ! I have just been reading about NI contributions, I'll be doing all the paperwork on Tuesday (got a job on all of Monday)

Thanks

[JustOneUK]

hey i thought i would chip in with my explanation, just to add some wood to the confusion fire.

you fix someones comuter...charge them £30 walk away with the cash. VAT does not get a mention. You neither have to charge it or claim it back.

You mate has to pay VAT on the stuff he purchases because the company he gets it from is VAT registered. Your mate could get that VAT back..provided he is VAT registered too.

All you need to worry about is paying tax. So you either declare your earnings online at tax.gov.milkmedry...or get an accountant to sort it out for you once a year for about £150.

make sure you put some money aside to PAY any tax you owe. I would not worry about company car and tax/vat benefits until you are earning a steady income.

PS.. i hope you book your customers back in for a PC Quarterly cleanup :) it's MOST necessary ;)

James

[bwglaw]

Everyone is right you don’t have to charge VAT and you already pay it. Unless you are making at least 48K per year then you don’t have to be VAT registered.

I understand it is £60,000, not £48,000

Make sure that what you spend in parts is put down as a disbursement that is a refund of costs incurred. If you decide to mark it up to make a profit then that will be liable to income tax.

[MinuWeb]

Isn't it also the case that if you go over the threshold for paing VAT they you are also liable to pay VAT on all that years previous invoices that you did not charge VAT on ?

[confused]

Thanks again,

VAT is already payed as it is payed by my friend who orderes the parts, so I suppose really that part is out of the equation? I'm actually for all intents and purposes buying a part form a retail outlet is that correct?
I then add a profit and charge the customer, so say I charge the customer £20 for the work, and £5 profit on an item that was fitted, I need to pay tax (not VAT) on the £25 ?

PS.. i hope you book your customers back in for a PC Quarterly cleanup Smile it's MOST necessary Wink
No, but I will in futre, thanks ;)

Make sure that what you spend in parts is put down as a disbursement that is a refund of costs incurred. If you decide to mark it up to make a profit then that will be liable to income tax.
erm, the only part of that I understand is the bit about paying tax !

Thanks again

[DuaneJackson]

Take Hayles advice, speak to an accountant now. I can recommend www.alphalimited.co.uk, another member here. But you may feel more comfortable with someone nearer to you gepgraphically.

S/he'll save you what you get charged, especially if you factor in the fines you'll get if you don't do things properly.

[TheDavecable]

Hi Confused,

Looks like everyone finally understood your dilemma and you have some great information. I have recently had to read over a VAT Guide to help me understand my situation, was quite insightful. SJD Accountancy provide loads of info on all the issues contractors find, might be worth paying their site a visit in the future.

Take care