How to move forward?

[Bello_1]

Afternoon everyone.

I run a small business which provides exterior cleaning services. The majority of our customers are domestic clients, whereby we provide regular window cleaning, gutter cleaning and pressure washing. We have a few commercial customers also, I'd say about 20%.

The issue I face now is I have to register for VAT. I looked into ways of splitting the business, with the other business servicing commercial clients. However I don't think this is the best route.

I don't buy enough materials for it to be worth paying the full 20%VAT as there's not much to claim back on so will be paying the flat rate, 11% first year then 12%, and claiming back VAT on purchases over £2k (rare).

Doing a few sums I will be paying the equivalent of someone working 3 days a week in VAT a month. Now, do I:
1) charge all domestic customers the current price PLUS VAT and explain to them the situation - could lose a few
2) put prices up say 15% to cover the shortfall - haven't put prices up ever, however already well priced
3) keep prices as they are but take a step back from the actual work to grow the business and take on another worker/subby (already have someone working for me) - costs start going up dramatically and service could slip

It's good that business has grown so well over the past 4 years, exceeding my expectations, but it also brings other headaches with it, and the thought of losing 12% off of our domestic turnover is not a nice feeling.

Any help/advice would be appreciated.
Thanks.

 

[BigTree]

I'm faced with the same dilemma and would also be interested in peoples experience with this.

I was planning on keeping my prices the same and taking the hit in profit. It ends up that I'll take home less money than if I just stop working just below the threshold but growth is steady so expect in a few months it'll be okay.

Are you a sole trader or ltd co? I'm ST and wondered if changing the business to ltd and not drawing so much would help. I'd be speaking to an accountant on that one closer to the time (about 4-6 months before I hit the threshold I think)

On the plus side your cleaning business is going from strength to strength so I'm sure the inevitable vat addition will not feel so bad after 6 months.

 

[estwig]

My last two businesses I worried about going vat registered, like you I am B2C. Once you've done it and passed the cost on, you'll wonder what all the fuss was about.

Certainly never take a hit yourself, sod that, pass the 20% onto the customer, shrug, say sorry and if they really don't like it move on. Nearly all will either wear it or look for a cash deal, what you do about the cash is up to you.

Never, ever, wear any of the cost of the government's unpaid tax collector scheme yourself, that's what customers are for!!

 

[The Byre]

A friend of mine sells and tunes pianos for private households, businesses, schools and colleges. When tuning for punters, he is a sole trader. For businesses and schools he is a Ltd. and VAT registered.

 

[estwig]

A friend of mine sells and tunes pianos for private households, businesses, schools and colleges. When tuning for punters, he is a sole trader. For businesses and schools he is a Ltd. and VAT registered.

Very very naughty, he is up to something very iffy to pull that off!!

 

[boring-friday]

on the plus side your commercial clients will be able to reclaim 20% VAT even though you only charge them 11% so you can charge them more ( think thats right I'm not a expert) so maybe aim for more commercial clients.
Or you could jack your prices up and just stay under the threshold, you must be making fairly decent profit with only 1 employee. Depends how much you want to expand and what your profit margins are.
I'd put the prices up 15% before registering for vat, see how much difference it makes and then decide whats best

 

[Bello_1]

A friend of mine sells and tunes pianos for private households, businesses, schools and colleges. When tuning for punters, he is a sole trader. For businesses and schools he is a Ltd. and VAT registered.

Very very naughty, he is up to something very iffy to pull that off!!

Definitely. I looked into something similar but HMRC make it nigh on impossible to do legitimately. I'd rather do it the right way than worry about being looked into someday and having to owe more than my business is worth!

 

[Bello_1]

on the plus side your commercial clients will be able to reclaim 20% VAT even though you only charge them 11% so you can charge them more ( think thats right I'm not a expert) so maybe aim for more commercial clients.
Or you could jack your prices up and just stay under the threshold, you must be making fairly decent profit with only 1 employee. Depends how much you want to expand and what your profit margins are.
I'd put the prices up 15% before registering for vat, see how much difference it makes and then decide whats best

Correct, I will charge commercial clients 20% and pay 12%. Its not loads and that 8% 'profit' will get taxed anyway.
I have thought the same thing and its the way I will go - definitely going to start marketing for more commercial work. Profits are good, only one van and one employee. The next phase is getting another van and another employee, and balancing everything that goes with. Its amazing how quickly costs go up though, I will have to get a lot of extra work just to cover the additional costs, I then need to make profit on that work, otherwise there's no point.

 

[Bello_1]

My last two businesses I worried about going vat registered, like you I am B2C. Once you've done it and passed the cost on, you'll wonder what all the fuss was about.

Certainly never take a hit yourself, sod that, pass the 20% onto the customer, shrug, say sorry and if they really don't like it move on. Nearly all will either wear it or look for a cash deal, what you do about the cash is up to you.

Never, ever, wear any of the cost of the government's unpaid tax collector scheme yourself, that's what customers are for!!

Thanks estwig. I do like this thought. I think in my case having a large number of customers you get into a mindset of 'passing on 20% to loads of people' when the reality is its only one at a time who receive the price increase. I look at the total figure which is quite a lot.

Cons for this are that there are a lot of people who do what I do in my area and I am already probably the most expensive. A customer currently paying say £50 a clean will now have to pay me £60, when there's someone who will do it for £40. Pros are that I know people like me (not being big-headed) and like to deal with me. They would probably just about be happy paying £10 more than use someone else, but £20..??

 

[estwig]

If you want to expand the business, you don't have any choice other than to pass on the 20% in full to your clients. Some of the domestic ones will want to pay you cash, a tricky one as your declared turnover will suddenly drop. This can be explained by losing customers due to going vat registered.

I too was already the most expensive before going vat registered, most of my competition isn't. Clients take comfort in dealing with a professional company, besides which it's just another tax, we are British paying stealth taxes is what we do!!!

 

[HazelC]

Add the VAT onto all invoices, you may loose some customers but you shouldn't take the hit yourself and as you do a great job the majority of customers will be happy to stay with you anyway.