VAT registration

[nasirs]

If a restaurant will start trading in one month time, incurred service cost of 20,000 plus VAT and incurred matterial cost of £30,000 plus VAT and 40,000 plus VAT on assets.

Now this would be a restaurant, I understand that he could go back 6 months to claim service costs and 3 years for others (which would be £3500 for services) . This could make him register earlier because he might want to recover the VAT on the service cost. His turnover will be roughly £30,000 each month. Now if he be VAT registered or not his turnover will stay the same, after getting VAT registered it will be £30,000 inlusive of VAT. (If registered then input VAT would be £3913)

Is there anything wrong in delaying to register for VAT till he gets to the threshhold? As if he wont get registered for say 2 months then he will save £7826.

I understand that some of you might say that he should be VAT registered on the basis if expected turnover so could HMRC go back and consider the business as VAT registered since it has started trading? This would not be classed as breaking the law is it?

[Jenni384]

You have to register if:
Sales in the last 12 months went over the threshold
or
you expect sales in the next month alone to be over the threshold

In your example the business can delay registration til the threshold is reached.

If that means some pre-reg input VAT might not be claimable it might be worth looking at the pros and cons of registering voluntarily earlier. However if he's only just started trading and will hit registration in 2-3 months time, there's no pre-reg input vat to be lost, depending of course on when the pre-trading expenditure was incurred (apart from purchases that have been sold in the non-reg period, but then the corresponding sales won't have had output VAT on them so it doesn't really matter)

[spidersong]

You're only required to register if you know turnover will exceed £67,000 in the following 30 days alone, if he's doing £30K a month then this isn't an issue and the only compulsory registration will be in three or four months time.

First month 30K, Second month 30K (total 60K), Third Month 30K, the third month is when the limits exceeded, you'll have until the end of the fourth month to tell HMRC and be registered from the first day of the fifth month. So you could get quite a period through without registration.

One thing to look out for is where you say materials £30K, if this is materials supplied by a contractor as part of their fitting out then this may be part of the service your client received (whether or not separately itemised on the invoice) and so only claimable for 6 months, so you'll need to look at this carefully.

But if delaying registration till absolutely necessary saves them money, then delay registration.

I take it that this is a new restaurant and there's no chance of needing to be a TOGC from a previous restaurant business (I only ask because I've seen many restaurants fall inot this trap)?


EDIT: That'll teach me to start a reply and then get distracted, didn't mean to step on your toes Jenni. (The second part of my reply's still relevant though)

[nasirs]

He does have some pre-reg VAT to be lost but I am sure it aint much then the VAT he might end up paying if he get registered.

Thanks Jenni, I wanted to have another professional and more experienced opinion like yours and you were a great help as usual.

[Jenni384]

Thannks guys :)

Spidersong thanks for the extra detail, always welcome :D

[nasirs]

There is a TOGC trap but it is covered as the business sold by the previous owner was a bakery not a restaurant. The business was surely TOGC but I believe it should only be a concern if it the similar trade, is'nt it?

[nasirs]

I can explain you a little bit about the business and I guess that would be easier for you to understand if it is a TOGC or not.

The seller use to run a bakery, the new business will be a lebanese restaurant.

The seller and the buyer has not elected to waive the exemption to VAT on the property.

[winelight]

I quote:

2.3.2 Use of Assets – Same kind of business
The assets you are transferring must be intended for use by the new owner in carrying on the same kind of business. If the purchaser intends to use the assets to carry on a different kind of business you must charge VAT in the normal way.

This condition is not fulfilled, therefore TOGC does not apply.

[nasirs]

I doubted this all the way through and do not understand how vendor's accountant & solicitors approved him to go for TOGC. I believe this would effect the vendor not the buyer as it is his responsibility.

[winelight]

Yes it's the vendor's responsibility to get it right for TOGC.

[DirCosec]

More simple to register now for VAT and choose and effective date. Then it is done. The effective date could be when you feel you get to that level ie threshold. Any more questions let me know.