Pre-accountant visit advice!

[mattakqj10]

I am seeing an accountant for advice on this but cant see him until Jan 8th so was hoping you guys could give me some early pointers.:)

Hoping you guys can help me with a few decisions I need to make. They are prob very basic questions to you but they are totally bamboozling me!

Basically I have the nice problem of making a much bigger profit than I thought i would be at this stage (been in operation about 2 years).

I am currently on schedule for about a 80 - 90k profit in this accounting year. I am service based so have virtually no outgoings.

I am currently a sole trader and on that basic info would you recommend staying like that or changing to a limited company?

I am trying to avoid having to charge VAT as almost all my customers are members of the public and I have no real outgoings so VAT will mean I'll have to either put my prices up or take a big profit hit. Either way I'll lose money.

If I'm a limited company does that mean I HAVE to charge VAT even if Im not over the threshold?

My profit comes from 3 different businesses. All 3 are the same type of business but with a different subject matter and have different client lists and different level of profits (one is 60k, the other two 15k each) Can I split them up for VAT purposes if I stay a sole trader or can I only do that if a ltd company?

Is there any way at all I can avoid VAT!!! lol

[Alpha]

By being a sole trader you will have to charge VAT as the total income would be above the vat threshold.

What we really need to know to give correct advice is the level of turnover for the three businesses not the profits.

The only potential way of not registering for VAT would be to trade the business earning £60k as a limited company and continue the other two businesses as a sole trader (Even then you are going to be very close to the VAT threshold in the one business, currently £68k and I am making the assumption that this business does not have much in the way of costs.)



You do not need to charge VAT if you are under the threshold no matter what form you trade under.

[mattakqj10]

Thanks Alan, thats a big help.

Having the main business as a ltd co and the other 2 remaining sole trader sounds like a good plan in theory.

Turnover and profit are virtually the same as my only regular outgoings are web hosting and a small monthly phone bill.

I could probably keep the main biz under 68k if I keep an eye on it.

Am I right in thinking as a ltd co I pay 21% tax on profits and then pay myself a wage and are taxed at the usual 20%/40% rate?

[David Griffiths]

You need to be aware that if HMRC is of the opinion that you have artificially separated a business to avoid VAT registration, they have powers to counteract this.

Some guidance here (http://www.hmrc.gov.uk/vat/start/register/when-to-register.htm#7), but if you say that all three "are the same type of business" then you are certainlyl at risk.

[mattakqj10]

They are 3 totally seperate businesses. The only connection between the 3 is that they are in the same sort of field (but focus on different areas) and that I cross-promote. I wouldn't imagine there would be any issues counting them seperatly for tax reasons but I'll check with the accountant to make sure.

[dunerider]

You need to be aware that if HMRC is of the opinion that you have artificially separated a business to avoid VAT registration, they have powers to counteract this. this is my understanding too otherwise we would all be splitting our businesses to avoid paying vat.

you should also be looking at your pricing structure as you will be inhibiting your own growth if the only way you can make a profit is to effectively reduce your prices by 17.5%

[David Griffiths]

. The only connection between the 3 is that they are in the same sort of field (but focus on different areas) and that I cross-promote.


That's the kind of thing that HMRC are looking for. You are correct to speak to your accountant about it.

[selfeax]

I agree with David, definitely an area you should speak to your accountant about but note that if the 3 business are somewhat alike (as you suggest), are located in the same premises and utilise the same infrastructure between them, it may be difficult to class them as separate business and may be seen as artificial separation by HMRC- somewhat like a bed and breakfast operator trying to claim that the accomodation and the food businesses are two separate businesses.

[mattakqj10]

Yeah I appreciate what you are saying, I'll speak to the accountant about it. There is no way I could run all 3 as one business though as people who want to pay for one or two of the services probably wouldn't want to pay for all 3 so its not a case of me splitting them for no reason.

God all this is complicated! I come from a gambling background and primarily have made my living betting and trading since I left school. No worries there with tax and VAT and god knows what else is lurking around the corner!

Hopefully all will become clearer once I've seen the accountant!

[Williams lester]

God all this is complicated! I come from a gambling background and primarily have made my living betting and trading since I left school. No worries there with tax and VAT and god knows what else is lurking around the corner!


Not necessarily so, you may well be taxed on this income if it is your profession!

[mattakqj10]

No, no tax on gambling winnings whether its your job or not. Government have tried to find a way to tax us for years but the main problem they face is that if they tax on winnings then of course that means you can claim losses as expenses! As most people lose money gambling I guess it would cost them more than they would recoup.

I'm sure they will find a way to get some kind of tax in the end but at the moment its tax free. There used to be a betting tax paid either on stake or winnings but that was removed about 15 years ago to stop the big UK firms moving abroad as they couldnt compete with the emergence of the internet.

Had an investigation a few years ago and had to show that all my income came from gambling which meant giving them details of every single bet I'd had and transaction I'd made. Thankfully I'd kept detailed records but was still an absolute nightmare.

[Williams lester]

No, no tax on gambling winnings whether its your job or not. Government have tried to find a way to tax us for years but the main problem they face is that if they tax on winnings then of course that means you can claim losses as expenses! As most people lose money gambling I guess it would cost them more than they would recoup.

I'm sure they will find a way to get some kind of tax in the end but at the moment its tax free. There used to be a betting tax paid either on stake or winnings but that was removed about 15 years ago to stop the big UK firms moving abroad as they couldnt compete with the emergence of the internet.

Had an investigation a few years ago and had to show that all my income came from gambling which meant giving them details of every single bet I'd had and transaction I'd made. Thankfully I'd kept detailed records but was still an absolute nightmare.

In your post you mentioned gambling and trading...I think it very much depends what sort of gambling we are talking about here, you could well be classed as a day trader and subject to tax, it is a very grey area and not one which has a simple answer to it.

[mattakqj10]

Hi William,

Sports betting only. When I say trading I mean on sporting markets (back a horse at 9/1, lay it at 6/1 etc).

That sort of stuff is defo tax free at the moment (I had a long tax investigation a while back and all came out OK) allthough I think it is a possibility that traders on the exchanges may be hit in the future allthough how workable that would be is up for debate.

I think it all comes down to the fact that if gambling winnings were taxable then there would have to be an allowance on losses too and obviously in the main there are much more losses than winnings.

I'm sure they will find a way to get something eventually though!