Costs involved with being VAT registered

[DeveloperBloke]

Hi all

My business partner and i have recently found a shop and we intend on opening our new flower shop very soon!

But, i have just found out that we are going to be charged VAT on the rent for the property. I have had a look around on the internet and found that commercial properties that are classed as new (3 years or less) are Vatable, but older properties are exempt unless an option ot tax is enabled by the landlord.

I spoke to the landlords agents and asked whether it was the landlord that has enabled the VAT tax, and they have said that they have to charge it.

I am not sure for reasons where the property would have to have VAT applied, other than the three year rule, and the building is very old so it doesn't fall into that category.

As we have just started out, we have based our rent on 8250, our rental per annum. if we have to pay VAT on our rental it takes it nearer to 10k, a considerable difference!

Something else we can do is to voluntarily register for VAT and thus claim back the extra charge. But, whilst i am aware of the liabilities of registering VAT (submission of tax returns, VAt receipts), i am not aware of how much in a year it will cost us in accountant fees and other costs

Can anyone please shed some light for us! Is it worth us registering?

Many thanks

Jamie

 

[MyAccountantOnline]

....whilst i am aware of the liabilities of registering VAT (submission of tax returns, VAt receipts), i am not aware of how much in a year it will cost us in accountant fees and other costs

Can anyone please shed some light for us! Is it worth us registering?

Many thanks

Jamie

Hi Jamie

If you are looking after your own accounting records and VAT returns, as opposed to getting your accountant to do so I wouldnt expect any difference in your annual fees for year end accounts and tax returns as it doesn't create any additional work.

The admin costs of registering/accounting for VAT are fairly minimal - accounting for VAT isnt terribly difficult once you a good accounting system in place, but when you say costs dont forget you'll have to pay output VAT on your sales once you register.

 

[akirk]

forget worrying about accountants fees...

look at your customers - most of them will be individuals I guess, which means that they are not VAT registered...

flowers costing them 10 will (from Jan next year) cost them £12

or to put it another way as people buying flowers look at the total price - for every £12 of flowers you sell, you will only be able to put £10 into the business, the other £2 will go to the VAT man.

you will be able to claim back £1,650 on the rent, but if you sell more than £8,250 of flowers (which you will need to, to pay the rent!) then you will have that amount extra in VAT to charge / pay back etc. i.e. the moment you hit £9,900 in sales you are no better off vat registering...

of course you can then reclaim VAT on your purchases, but on the whole as you aim to make a profit you will be expecting your income to be higher than your expenditure - as you will be selling at VAT inclusive prices - it is likely that you will take less money over all...

you may want to speak to an accountant about the different VAT schemes as some can be better than others for you...

but generally speaking (assuming you are under the VAT threshold), if your customers are predominantly VAT registered businesses than register (it is neutral to charge them VAT for them, and you can reclaim), if your customers are mainly consumers then do not register- it will cost you more in the long run...

you need to crunch the figures more accurately, but it is probable that it will cost you more to register for VAT.

Alasdair

 

[DeveloperBloke]

Hi Nicola

Thanks for your response.

I would expect that we will be doing the accounting initially, we will be purchasing quick books to use as our accounting software!

Whilst we will have to add vat to our prices, we will also be able to claim back on our purchases so this will balance out (roughly). But, because our rent is a purchase that we never sell, we will basically be able to claim the vat on rent back each year!

So, do you think it is worth signing up for vat? Are my thoughts above correct?

Jamie

 

[MyAccountantOnline]

Alasdair is spot on - I didnt mention that in my reply assuming you were aware of that when you said -

''whilst i am aware of the liabilities of registering VAT (submission of tax returns, VAt receipts), i am not aware of how much in a year it will cost us in accountant fees and other costs''

 

[MyAccountantOnline]

Hi Nicola

Thanks for your response.

I would expect that we will be doing the accounting initially, we will be purchasing quick books to use as our accounting software!

Whilst we will have to add vat to our prices, we will also be able to claim back on our purchases so this will balance out (roughly). But, because our rent is a purchase that we never sell, we will basically be able to claim the vat on rent back each year!

So, do you think it is worth signing up for vat? Are my thoughts above correct?

Jamie

When you sell to the public (ie people who arent VAT registered) you generally dont gain by being VAT registered, you just become 17.5% more expensive, or have to accept a reduction in your income equal to the VAT you are charging.

In the main for somone such as yourself unless you exceed/will exceed the VAT threshold I wouldnt advise you to register for VAT.

 

[DeveloperBloke]

Great piece Alisdair and Nicola!

I am reworking my cashflow to see what will benefit us most. We are aiming at corporate clients and the public, i suppose it depends on who will provide us with a bigger piece of the cake.

Initially it will definitely be the public so i think that we will visit this in a few months time!

Thanks for the advice!

Jamie