How does VAT affect a second business

[jamo]

I currently run a business just below the VAT threshold which has a good profit margin. I keep it under the threshold as if i were to go over the 58k, the VAT i could claim back on my inputs would be much lower than the VAT i would have to pay on my sales. I am looking at going into another business which operates on much lower margins but this would push me over the threshhold and ruin the profitiabliity of my first business. What i would like to know is whether it is possible to have 2 businesses and be VAT registered for one and not for another. I would imagine that it is not as i am a sole trader but could it be done by starting a limited company or if my wife started the 2nd business. I have no idea if this sort of thing is illegal or considered as tax evasion but if it is not possible i would just rule out the idea of a new business.

Any advice would be gratefully recieved.

 

[MikeH]

Who are the end users of your products/services? Public or businesses?

Mike.

 

[jamo]

The public. I sell my products online

 

[Alpha]

As a sole trader the VAT registration relates to you personally therefore by running two businesses if the TOTAL turnover goes above the £58k you are required to register for VAT.

It is permissable to have a limited company and a sole trader which would be two completely seperate legal entities and each would have its own turnover up to the £58k before requiring to register.

You can also in certain circumstances have a partnership and a sole trader each with its own limit BUT where a business has been artificially seperated into smaller parts which results in the avoidance of VAT Customs and Excise have the power to enforce you to count the businesses as one .

There is better guidance in vat notice 700/1 on page 20 which you can read for yourself rather than me regurgitating it

http://www.hmce.gov.uk/channelsPort...uides&propertyType=document&id=HMCE_CL_000086

 

[jamo]

Thanks very much Alan, that is very helpful. I will read up on it

 

[gj]

Sounds to me like you should be looking at taking your existing business forward so that you burst through the VAT threshold.

Surely if your margins are good on this one, and not so good on the second business being contemplated, then the first business is the one to focus on.

What would be you overall position if you, for example, doubled your turnover in the first business. Would the extra profit after accounting for VAT on sales, less Vat recovered on inputs, mean you are better or worse off?

What level of turnover would give you a roughly similar position to the one you are in now. I appreciate that you do not want to be just above the VAT threshhold, but I always feel it is a negative approach to deliberately hold back a businesses development to avoid what could be the short term pain of going through the VAT threshhold.

What if your business could be a million pound turnover business at some stage in the future, but you keep it restricted to below the VAT threshhold?

HTH

Graham

 

[jamo]

I have been looking into all of this and i think going VAT registered is unavoidable. I have been thinking about going for the flat rate as from what i understand for a retail business it is 6% of turnover which would be better than paying 17.5% and claiming back on the inputs.

I am going to call them about it but if anyone happens to know, do i have to immeadiately pay VAT on my last 12 months turnover as i am just about to go over the threshold, or does it start from the day you register?

 

[Alpha]

It starts from the date on your registration certificate which is the date you ask or must be registered from.


However you would be able to claim vat back on capital items you have purchased for the business within the last three years (It also applies to stock purchased IF you can show that the goods purchased for stock prior to registration are still in stock at the date of registration or have been used to make other goods which are still held in stock at the date of registration.

 

[jamo]

Thanks Alan, thats very helpful.

Th only other thing i am worried about is that i did breifly go over the VAT limit 6 months ago I wrote to them and explained it was a temporary blip caused by a bit of wholesaling and they said it was OK. Since then i have been back under the threshold but it looks like i am going to go above it again next month.

Is it possible that they may try and push my vat registration back to 6 months ago?

thanks again

 

[gj]

I f they agreed you did notr need to register then, they shouldn't now go against that.

I had a client who temprarily went well over - he got a contract worth over £200k in turnover for a six week period. We explained the situation and they agrred he did not need to register.

He then secured another contract of a similar value so we then registered him. There was no attemt by Customs & Excise to back date the registration.

Regards

Graham

 

[jamo]

thanks graham!