Close to VAT but not ready

[Ali McGowan]

Hi all
I'm an eCommerce seller with about 95% of my sales coming from eBay.
This year has been tough, but its also turning out to be the year that I am pushing the VAT threshold, and expect to hit it within the next few months, but this is causing me a great deal of concern.
Even though sales are up this year, the majority of it has been very low value compared to pre-covid sales, less than £10 including postage whereas they used to be over £20-30. By the time I have taken into account the postage, fees and daily running costs, I am left with very little for my own wage and have scraped by all year going through almost all of my savings (I have fallen into the no covid help category). If I take VAT out of that as well I am left with nothing, but am worried that adding VAT on top might hamper sales. As many of you may know, eBay is no easy market, and my website is till in its early days.
Someone suggested splitting the business into two between myself and my husband, but I don't feel happy or comfortable doing this. We had planned on him becoming a business partner after this tax year as he helps me out a lot already there.
Can anyone offer any advise please?

 

[lesliedocherty]

Put your prices up then, you cannot split your businsess, its won't fly.

 

[Mr D]

Splitting the business to avoid VAT can easily look to HMRC like an attempt to evade VAT. Whether it was or not. Can be done, just not easily and the risk exists that HMRC decide its done for a particular reason.

If not getting sufficient profit on sales then change costs or change prices. Perhaps both.
Or even change stock - what worked a couple of years back isn't necessarily going to keep on working for years.

Lots more demand for ecommerce, lots more businesses jumping on the bandwagon to take advantage too. Means change for those of us selling online.

 

[KAC]

Google Disaggregation VAT

 

[Alan]

Don't do it.
Adjust your business so it can be profitable without defrauding the HMRC.

 

[Ali McGowan]

Thanks everyone.
I have another couple of questions if you don't mind.

1, As you register for VAT at the point you hit the threshold, does that mean you need to pay a tax bill for that year gone, or will it be at the end of your first full registered year?

2, Are VAT charges in advance of the coming year (I have heard horror stories of people being charged 2 years worth of VAT in their 1st year of being registered)

 

[Mr D]

Relax its not that bad.

You register. Then you get a date - and you start charging VAT from then. However you can claim backdated (if not on flat rate scheme) going back quite a bit. 4 years as I recall but not up on current specs.

The horror stories are often by people messing up. Like delaying VAT registration until a year after they should then having to pay 2 years....

VAT returns in arrears - so you get the money in before you have to hand it over to HMRC. Either at flat rate or by offsetting VAT paid out against VAT collected. Depends which scheme you are on.

I used to put 10% of total sales by each month in savings account and every quarter would usually have money left over in it after paying HMRC their money.

 

[Ali McGowan]

Relax its not that bad.

You register. Then you get a date - and you start charging VAT from then. However you can claim backdated (if not on flat rate scheme) going back quite a bit. 4 years as I recall but not up on current specs.

The horror stories are often by people messing up. Like delaying VAT registration until a year after they should then having to pay 2 years....

VAT returns in arrears - so you get the money in before you have to hand it over to HMRC. Either at flat rate or by offsetting VAT paid out against VAT collected. Depends which scheme you are on.

I used to put 10% of total sales by each month in savings account and every quarter would usually have money left over in it after paying HMRC their money.

That's great thanks. Sounds like a doddle now.
If I register on time, then I can change my prices etc in line.
I already have sound accounts (except for the months the schools are closed) so adding a few extra numbers shouldn't matter.

Thank you all, it makes much more sense now

 

[DefinitelyMaybeUK]

However you can claim backdated (if not on flat rate scheme) going back quite a bit.

We were caught out by this as it only applies to UK VAT paid on stock you currently have at the point of registration - if you happen to have any EU sourced stock that you've paid pre-brexit vat on in that country, then you can forget about claiming that back - it took sometime for HMRC to decide it wasn't possible in our case. Don't forget you can always register voluntarily and it's a rolling 12 months not a tax year that decides the threshold.

 

[Alan]

You can also go back 6 months for services, so things like your hosting, web design costs, accounts software etc

Also the 4 years will include VAT on not just stuff you have in stock, packaging etc, but assets like computers etc

https://www.gov.uk/vat-registration/purchases-made-before-registration

Also don't forget the threshold is the rolling 12 months - not your financial year, which is what catches most out.

What that means is as you get close, you need to update your accounts monthly or you may accidentally breach. So it is better to register a bit earlier than get it wrong.

 

[Ali McGowan]

Also don't forget the threshold is the rolling 12 months - not your financial year, which is what catches most out.

What that means is as you get close, you need to update your accounts monthly or you may accidentally breach. So it is better to register a bit earlier than get it wrong.

Yes, I only learnt this a couple of months ago, but luckily I do my books every month anyway. I had a randon investigation the other year which made me keep a closer check.
Our financial year is in-line with HMRC and coincidentally our rolling 12 months looks to fall around that time too. I'm guessing end of April, possibly March

 

[UK Contractor Accountant]

You can still claim pre registration vat claims even if Flat Rate Scheme used.

 

[STDFR33]

If you are a sole trader, you couldn’t incorporate before you are liable to register and it will reset the turnover threshold.

 

[KAC]

If you are a sole trader, you couldn’t incorporate before you are liable to register and it will reset the turnover threshold.

COULDN'T should be COULD and it means that if the business is taken over by a Limited Company before you reach the turnover threshold, you start counting from zero again

 

[GLAbusiness]

..and coincidentally our rolling 12 months looks to fall around that time too. I'm guessing end of April, possibly March

I don't understand. The rolling 12 months happens every month, not just once per year

 

[Ali McGowan]

I don't understand. The rolling 12 months happens every month, not just once per year

I mean the point at which I hit a rolling 12 month turnover of £85k is March/April. This will coincidence with my financial year and the tax year

 

[paulears]

Why not do the price adjustment on some lines now and monitor the impact. I’ve passed on the increased shipping charges on some items and nothing happened, people carried on buying them even though they’d gone up