Registering for VAT

[Dxmian]

Hello there,

Would anyone recommend registering for VAT straight away for a new construction firm?

Machinery and other stuff will be bought and it mainly includes VAT so that's why I'm thinking of registering for VAT from the beginning.

Thank you.

 

[neilwallace]

It all depends on whether your customers are VAT registered. In simple terms, if they are, then it's best if you are, otherwise your 20% increased cost of sales which you will have to pass on can't be claimed back by the customer.

Don't be scared of VAT, it's dead easy. However, you should always remember that you're a tax collector on behalf of HMRC if you're VAT registered - Just don't spend what's never been yours.

 

[billmccallum1957]

Not enough info to give accurate advice.

What's your likely turnover in year 1?
What level of expense will you incur on equipment?

as Neil said above, will your customers be VAT registered or general public?

In the end its a question of maths, will it be in your best interest to register? If you have an accountant he or she should be able to guide you.

If you don't have an accountant I can advise if you PM figures.

 

[Andrew Chambers]

Hello there,

Would anyone recommend registering for VAT straight away for a new construction firm?

Machinery and other stuff will be bought and it mainly includes VAT so that's why I'm thinking of registering for VAT from the beginning.

Thank you.

No brainer. Register for vat from the off. You can reclaim all your vat expenses and I'd imagine , being in construction, your clients will be either vat registered businesses or the public who expect to pay vat anyway. Either way I can't see a construction business lasting long if it doesn't reach the vat threshold!!

 

[Dxmian]

No brainer. Register for vat from the off. You can reclaim all your vat expenses and I'd imagine , being in construction, your clients will be either vat registered businesses or the public who expect to pay vat anyway. Either way I can't see a construction business lasting long if it doesn't reach the vat threshold!!

thanks! exactly what I was looking for, the company will turn over around 80k anyway in the first year.

 

[Andrew Chambers]

the company will turn over around 80k anyway in the first year.

Job done, if that's the case you'll be getting a nice refund on vat anyway. Just remember that when in profit you will pay the following years tax in advance, can be a bit of bugger if you don't allow for it from day one.

 

[john1989]

Lol

 

[billmccallum1957]

Not exactly sensible advice from Andrew, its definitely not a "no brainer".

Many, many customers will want you to "do it for cash - no vat", cash under the table or whatever excuse they can find not to pay the vat.

The question is "is it financially beneficial for you to register early"?

 

[Dxmian]

I understand, but I could always for example charge 8k + VAT instead of 10k and then get the VAT refund which will be the same, wont it?

 

[Bob]

What kind of construction work will you be doing?
Who will yourcustomers be?
I agree with @john1989 that the advice from @Andrew Chambers that is a no brainer is incorrect.
It may be but you need to provide more information first

 

[billmccallum1957]

The VAT is for the whole quarter, so first qtr you might get a rebate, but likely you will be paying them from that point.

My view has always been only register if its worthwhile for you, if you have large outlay on equipment (eg £20K+) then avoid if possible.

The chances are your first few clients will be smaller jobs, if you have to add VAT it might mean losing the work altogether, and as I said previously, many people wont want to pay VAT even if you are registered.

 

[Andrew Chambers]

The VAT is for the whole quarter, so first qtr you might get a rebate, but likely you will be paying them from that point.

My view has always been only register if its worthwhile for you, if you have large outlay on equipment (eg £20K+) then avoid if possible.

The chances are your first few clients will be smaller jobs, if you have to add VAT it might mean losing the work altogether, and as I said previously, many people wont want to pay VAT even if you are registered.

Rubbish advice. Many people may indeed not want to pay vat, who does? A construction company that turns over less than £82k per annum isn't going to be in business long. Unfortunately, despite your advice that "only register if it's worthwhile for you" paying/charging vat isn't optional at this level.

Unless, of course, you are working illegally.

 

[Bob]

Sorry @Andrew Chambers but it is your advice that is rubbish. You know nothing about the OP or his business. While it may be beneficial for him to register, you cannot state that categorically without knowing more information about his business which he has not yet provided.
With a new startup, there can be significant benefits if registration is delayed until the turnover limit has been breached and registration will then be mandatory

 

[john1989]

If the construction business is mainly B2C, getting customers to purchase materials themselves would help keep you under the threshold and remain competitive. There are lots of other considerations.

There are simply too many variables for Andrew to decide that registering is a non-brainier.

 

[Andrew Chambers]

If the construction business is mainly B2C, getting customers to purchase materials themselves would help keep you under the threshold and remain competitive. There are lots of other considerations.

There are simply too many variables for Andrew to decide that registering is a non-brainier.

I guess it depends on if the op is going down the professional or cowboy route. If he's going down the professional route, and he says he'll be turning over at least £80k in the first year, he'll help his start up cash flow no end by registering for vat now.

If he's doing mainly new-builds VAT won't be an issue for customers anyway. So yes, I agree there are a lot of variables, but turning over £80k doesn't seem to be one and as such he'll have no choice if he registers for VAT or not. So why not do it sooner rather than later?

 

[john1989]

Gettin B2C customers to purchase their own materials is not a 'cowboy' route. It is a sensible route.

The chances are, as a start-up, the OP will have to take smaller jobs to begin where customers will be price sensitive. An extra 20% could be the difference between winning work or not.

Given that he can claim back VAT on capital items going back 4 years when registering, I don't think registering for VAT should be done simply to generate a refund on the first return.

The OP needs to sit down with an accountant and structure things properly.
Taking unqualified advice from the interwebs is likely to cost them money.

 

[Bob]

Can only agree with @john1989 - sadly

 

[john1989]

2646 posts - you had to agree with one eventually

 

[Andrew Chambers]

Taking unqualified advice from the interwebs is likely to cost them money.

Couldn't agree more, said it many times myself. We can still have the debate and a good argument though

 

[isdoo]

I am planning to register myself.

I will have a very early large bill for around £4K+ of VAT - so for me I guess it is worthwhile to register.

I do not expect to make many VATable invoices, as my business model will not involve making large VAT out invoices as my business is property based. So I will probably have more claimable VAT than chargeable VAT.

 

[john1989]

I am planning to register myself.

I will have a very early large bill for around £4K+ of VAT - so for me I guess it is worthwhile to register.

I do not expect to make many VATable invoices, as my business model will not involve making large VAT out invoices as my business is property based. So I will probably have more claimable VAT than chargeable VAT.

What will you be supplying?

 

[isdoo]

property

 

[john1989]

Do you mean property rental?

 

[isdoo]

Sorry, no property trading - in full - essentially buying and selling property either through agents or auctions etc.

 

[john1989]

If you refer to residential properties you will not be able to register for VAT.

 

[isdoo]

Why would that be? I will be offering other services direct to consumer. Estate agents are registered for their fees. it is just that large chunks will not be subject to VAT.

 

[john1989]

Because residential properties are VAT exempt.

If you intend on offering other services that are taxable, only VAT attributable to the taxable supplies can be reclaimed.

If you have a mixture of taxable and exempt supplies, this can be an absolute minefield.

You should almost certainly be taking professional advice on this.

 

[David Griffiths]

If you are buying an selling property, that is an exempt activity. The general rule is that you cannot recover input tax on expenses that relate the the exempt supplies that you make. In fact if the only sales that you make are those of properties, then you would not be able to register for VAT in the first place.

If you will be making some taxable supplies (e.g. by carrying out building work for customers) your business will then be subject to the rules for what is called partial exemption. That can lead to all sorts of complications. In those circumstances you need proper advice on your particular circumstances, bearing in mind that those can change quarter to quarter. You are not going to get that by posting general questions on an internet forum. It's already taken two days to find out that your business activity includes property development and not just general building work

 

[john1989]

It's already taken two days to find out that your business activity includes property development and not just general building work

This isn't the OP. This was just somebody else mentioning becoming VAT registered when I questioned the property aspect in case it was an exempt supply.

Good analysis of the exemption / partial exemption aspect though, David.

 

[billmccallum1957]

You really do need to look at the numbers before deciding.

Although it sounds like you already made your mind up.