should i register for vat

[bobtheboat]

I am a self employed carpenter approx turnover 40-50k ( subcontract work ) pa i also own and rent out 5 houses in partnership with my wife. approx turnover 45k pa. I am thinking of registering for vat what would be the best scheme to opt for ? I am a bit confused at the moment as what to do. all help appreciated.

regards bob

[Brad Naylor]

Hi Bob,

I'm in a similar line of work - a cabinetmaker.

It all depends on whether the bulk of your business is with VAT registered contractors who would be happy for you to add VAT onto your current invoices, as they would be able to claim it back. If so, it would be in your interests to get VAT registered as it would not affect your income, but would minimise your expenses as it would allow you to claim back the VAT paid on materials, tools, and costs such as your van.

If your work is mainly with members of the public or non-registered contracters however, VAT registration would be a disaster. It is doubtful if you could raise your prices by 15% without meeting resistance, so at least some of the VAT charged would have to be absorbed and come out of your own pocket.

Reading between the lines, I suspect that a fair amount of your time is spent on maintenence of your own rented houses. One thing I would definitely do is structure the carpentry business as a limited company who then invoices the 'property company' for all works done. All manner of tax advantages then suggest themselves.

You need to discuss things with a good accountant.

Cheers
Brad

[bobtheboat]

Hi brad thanks for reply. all my work is subcontracting for vat reg firms.

i live 60 miles from the properties so i tend to use local labour.

upto now i have invoiced myself when i have done work on them never been questioned about it.

i might try tracking the vat for a month and see what difference it would make

regards bob

[Maslins]

As suggested, if your carpentry work is for VAT registered businesses, then yeah, register, and possibly consider the flat rate scheme if your purchases are minimal.

Re houses, residential rent is exempt, so whatever the situation you wouldn't charge rent to your tenants. Even if you did register, you wouldn't legally be able to reclaim VAT relating to repairs/whatever of the properties because you can only reclaim input VAT if you make taxable supplies (which you don't because rent is exempt, ie not VATable).

In short, register the carpentry business and continue with the houses as is. Make sure you keep your accounts separate.

[David Griffiths]

Re houses, residential rent is exempt, so whatever the situation you wouldn't charge rent to your tenants.

Now that is a novel way to run a property business. Can I rent a house from you please! :p

Even if you did register, you wouldn't legally be able to reclaim VAT relating to repairs/whatever of the properties because you can only reclaim input VAT if you make taxable supplies (which you don't because rent is exempt, ie not VATable).

In this case the property business is in separate ownership, so VAT couldn't be reclaimed.

If the property business was in the same ownership as the registered carpentry business there is a fairly good chance that VAT on repairs could be recovered under the De Minimis provisions relating to partial exemption.

[Maslins]

Now that is a novel way to run a property business. Can I rent a house from you please! :p

Oops :redface:...you know what I mean! For the sake of clarity, I meant "you wouldn't charge VAT to your tenants."

[taxattack]

As suggested, if your carpentry work is for VAT registered businesses, then yeah, register, and possibly consider the flat rate scheme if your purchases are minimal.

Re houses, residential rent is exempt, so whatever the situation you wouldn't charge rent to your tenants. Even if you did register, you wouldn't legally be able to reclaim VAT relating to repairs/whatever of the properties because you can only reclaim input VAT if you make taxable supplies (which you don't because rent is exempt, ie not VATable).

In short, register the carpentry business and continue with the houses as is. Make sure you keep your accounts separate.

Beware the flat rate scheme where residential rents are involved, as they are included in turnover if in the same ownership as the trader, although in this particular case, they are separately owned by the husband and wife partnership.

Chris

[David Griffiths]

Oops :redface:...you know what I mean! For the sake of clarity, I meant "you wouldn't charge VAT to your tenants."


Of course I know what you meant! Just too good to miss. :D

[MQ57]

Personally I would say don't register until you know you are going to hit the amounts that you have to hit when you have to register by law then... register in good time.

My sister registered before she needed to and got an inspection.. It was fine as it happens, but it was a total inconvenience for 2 days, and she is just so busy and run the business alone - and of course they need your time of course - she felt it was just a pain I suppose, and most inconvenient and stressful as the time they demand has to be provided - fine if you have staff to take over.

Of course once registered they then know about you and so you risk this too - which almost always results in a fine and charges (of course only if owed I know) ... fact is, the time to have to charge and account for vat will come soon enough - why bother earlier than you need to.