Register for VAT or not?

[ds65]

Hello everyone,

I'm in my 3rd year of running a phone repair business. I'll be turning over 100k this year so need to register for vat.

I had a meeting with my accountant yesterday and if I were to restrict sales by taking 2 months off from work I could avoid having to register for vat and still take home the same wage than if I was to work and register for vat. However by doing that I restrict any more growth.

Unfortunately I'm unable to charge any more than I am for my services. I'm already at the premium end and I fear an increase in prices will lose business.

So what do I do? Take a 2 month holiday or work harder, try to grow but then the extra in sales pay straight to the taxman?

 

[UK Contractor Accountant]

Look at the VAT Flat Rate Scheme where you only pay at a flat rate % of your sales.

https://www.gov.uk/government/publi...ice-733-flat-rate-scheme-for-small-businesses

 

[ds65]

Thanks - we did look at that and I would pay less vat than on the normal scheme even after claiming on purchases

 

[UK Contractor Accountant]

If you have not exceeded the vat registration limit of £83K there is a way of resetting the clock again back to £0 so you can trade again up to the limit before the decision to register has to be taken. Your Accountant should be aware of this delaying trick!

 

[ds65]

No she didn't mention this to me, could you give me more info on that please?

 

[john1989]

If you aren't already trading as a limited company, incorporating before becoming liable to register for VAT would reset the clock.

But that is only delaying the inevitable.

Your accountant should really know about these simple quirks. It has the potential to save their clients quite a bit of dollar.

 

[ds65]

Hi John,

I'm already trading as a limited company, I should have mentioned.

 

[john1989]

Hi John,

I'm already trading as a limited company, I should have mentioned.

That's probably why your accountant didn't mention it then!

It's therefore a decision of business growth. Do you want to put a ceiling on your earning potential?

 

[UK Contractor Accountant]

You can dis-incorporate - that will rest the clock.

 

[ds65]

That's what I'm stuck thinking about.

I could register for vat using the flat rate scheme but I'd be down about 10k for the year paying vat. I would therefore need to grow just to cover this which is easier said than done. Say I do manage to take more repairs I wouldn't be able to cope by myself anyway and would need a part time employee further increasing costs.

If I don't register I'll need to turn away a lot of business. Again, I think that's easier said than done. I could close for 2 months, take home the same pay for the year but then letting people know you're closed won't do the business any good either.

I live in a town with a population of about 80,000. There are 2 other repair shops here so there's definitely more business available locally.

Basically - for the short term I could limit my hours and pay myself the same or continue working 70 hours a week and try to grow.

I've no idea!!

 

[john1989]

You can dis-incorporate - that will rest the clock.

I did think that. But then I thought that the problem is that there should have been a good reason for incorporating. If they would need to incorporate again in another 12 or so months, it will probably get caught be the anti avoidance legislation.

 

[john1989]

That's what I'm stuck thinking about.

I could register for vat using the flat rate scheme but I'd be down about 10k for the year paying vat. I would therefore need to grow just to cover this which is easier said than done. Say I do manage to take more repairs I wouldn't be able to cope by myself anyway and would need a part time employee further increasing costs.

If I don't register I'll need to turn away a lot of business. Again, I think that's easier said than done. I could close for 2 months, take home the same pay for the year but then letting people know you're closed won't do the business any good either.

I live in a town with a population of about 80,000. There are 2 other repair shops here so there's definitely more business available locally.

Basically - for the short term I could limit my hours and pay myself the same or continue working 70 hours a week and try to grow.

I've no idea!!

Are you happy with your current earnings?

Will you be happy with similar earnings in 5, 10 years time?

 

[ds65]

You can dis-incorporate - that will rest the clock.

How would this work? Dis-incorporate and the incorporate again?

 

[john1989]

How would this work? Dis-incorporate and the incorporate again?

You'd have to trade as a sole trader.

 

[ds65]

Are you happy with your current earnings?

Will you be happy with similar earnings in 5, 10 years time?

For the time being yes. I have a mortgage to pay and I'm comfortable. The phone repair business is a dying service though so I feel like I won't be here in 5 years anyway. However if I was still here in 5 years then no, I wouldn't be happy with the current earnings

 

[UK Contractor Accountant]

I did think that. But then I thought that the problem is that there should have been a good reason for incorporating. If they would need to incorporate again in another 12 or so months, it will probably get caught be the anti avoidance legislation.

go on a continuous cycle of Ltd, sole trader, partnership, LLP

 

[john1989]

go on a continuous cycle of Ltd, sole trader, partnership, LLP

Haha. The accountant would have fun with that ... "what are you going to trade as this year".

 

[UK Contractor Accountant]

For the time being yes. I have a mortgage to pay and I'm comfortable. The phone repair business is a dying service though so I feel like I won't be here in 5 years anyway. However if I was still here in 5 years then no, I wouldn't be happy with the current earnings

whooooops I have a client turning over £10M selling mobile phone screens, digitizers etc. Better tell them to start diversifying!

 

[john1989]

whooooops I have a client turning over £10M selling mobile phone screens, digitizers etc. Better tell them to start diversifying!

My dad has just got £50 worth of covers and screens that were ex Carphone Warehouse stock. Will they be interested at £25?

 

[UK Contractor Accountant]

My dad has just got £50 worth of covers and screens that were ex Carphone Warehouse stock. Will they be interested at £25?

I will get the MD to ring him with his offer

You better tell him to be be prepared for some hard bartering!

 

[ds65]

You'd have to trade as a sole trader.

How would everything work as in how I'm running the business? Bank account etc

I don't think there's a long future though especially with Apple repairs. Every year repairs are becoming more costly which doesn't help when Apple themselves are carrying out repairs fairly competitively too.

 

[japancool]

Once you've reached £83k turnover for the year, refuse any further work?

 

[ds65]

Once you've reached £83k turnover for the year, refuse any further work?

I did think that but how do I actually turn customers away. My trade is from local customers and what would happen in 2 months time when these customers have been trying to come in and find I'm closed. I wouldn't want to lose them to a competitor

 

[john1989]

I did think that but how do I actually turn customers away. My trade is from local customers and what would happen in 2 months time when these customers have been trying to come in and find I'm closed. I wouldn't want to lose them to a competitor

That's the risk shutting for periods of time does.

You could try stagger the periods of closure.

 

[ds65]

That's the risk shutting for periods of time does.

You could try stagger the periods of closure.

I thought of that too. I could actually take holidays and not lose money So many options, just don't know which one to go for!

 

[paulears]

I suppose it boils down to if you want to play at being in business or grow? Businesses in growth have always gone over the VAT limit and made it work. At the moment you are going for domestic consumers, so why not diversify and also aim for business customers. It isn't usually as bad as you think because maybe part of your income is parts, and equipment - which of course will then be cheaper in real terms, leaving you to either soak up the VAT on pure service charges, or swallow a proportion. I guess if a large proportion of your 80K is your profit, then not so good, but if the business makes a more modest amount - maybe it's not so bad, as a percentage.

 

[TheCyclingProgrammer]

If you register for VAT and don't increase your prices (so your current price becomes the VAT inclusive price), will the extra business (versus capping your turnover to stay below the threshold) outweigh the net reduction in your charges?

 

[MOIC]

If a business does not look at growth, it will eventually go backwards.

Given the huge potential of sales from selling mobile accessories, screens, cables, digitizers, covers, earphones etc etc, surely that must be the way forward.

Also, why think locally?

We supply to many customers with these accessories and I only see continued growth in this area.

As was mentioned in a previous post, registering for VAT will not stunt your growth, you have to look at additional sales to move your business forward.

 

[Gareth ACA Accountant]

You can dis-incorporate - that will rest the clock.

Beware the recent anti-pheonixing rules - basically, if you disincorporate and re-start up again, the distribution of your business, which would previously have been considered a capital transaction (ie capital gains tax) subject to entrepreneurs relief, would be treated as income, not capital, so you may trigger an unexpected and potentially large tax bill.
May still be worth it though...