Registering for VAT

[GentleGiant]

Our accountant has registered us for VAT.

Apparently this will start in a couple of days after he registered it yesterday.

However we will not get the VAT number for several weeks.

The instructions say that we need to increase our prices immediately by 20% which is hard as we have quoted without the VAT. We have many quotes in the pipeline.

Really not sure on the process as it seems that we need to charge VAT without a number!

Does this mean if we don't increase by 20% straight away we will lose that percentage.

I am very confused and need to understand how this works.

Apologies if it is basic!

 

[DWS]

Did your accountant not go through all this with you before registration?
Did you register voluntarily or because you had breached the threshold?
Basically you need to start allowing for VAT from the date that you register but you can not actually charge VAT until you receive your VAT number.
You can issue invoices now allowing for the extra amount and then reissue with a VAT invoice once you have the VAT number.

 

[Scalloway]

we need to charge VAT without a number

Yes

Does this mean if we don't increase by 20% straight away we will lose that percentage

Yes.

You will recover the VAT you have been paying on any goods you resell.

 

[DWS]

Yes

You cannot charge VAT without a VAT number but you must allow for it at the appropriate rate.

 

[GentleGiant]

What about quotes already sent out to clients? Those are obviously without any allowance and might be a month old.

No he didn't - but we are at the threshold.

Zero preparation or advice!

We can't afford to lose 20% on a job - we would have to turn away the job.

 

[DontAsk]

As stated many times on this forum you do not necessarily have to put prices up by 20%

You can include the cost of any stock you still have when you register in your first VAT return.

You need to work out how much input VAT you will have to get an accurate figure for price increases.

Your accountant should explain all this.

 

[Scalloway]

What about quotes already sent out to clients? Those are obviously without any allowance and might be a month old.

Are your customers individuals or VAT registered businesses? Adding VAT will not affect a business that will be able to reclaim it.

 

[GentleGiant]

Are your customers individuals or VAT registered businesses? Adding VAT will not affect a business that will be able to reclaim it.

Mixture of both

 

[GentleGiant]

As stated many times on this forum you do not necessarily have to put prices up by 20%

You can include the cost of any stock you still have when you register in your first VAT return.

You need to work out how much input VAT you will have to get an accurate figure for price increases.

Your accountant should explain all this.

Not sure I do - he is just saying that we need to increase by 20% straight away. Then reissue the VAT invoice once we have the number.


We do not buy and sell goods - we are mainly a service business.

Yes we have purchases that are VAT included, but these have mainly been software, office items, website etc.

So if I have a quote for £2,000 I now need to make that £2,400

Which is fine for new quotes - but quotes issued last month or before when we found out are at £2,000 - I can't afford to give HMRC £400 of that figure or whatever the sums are.

 

[DWS]

So when did the business actually breach the VAT threshold?
Seems odd that you are to be registered as you say ‘in a couple of days’
Usually when you breach the threshold you have the following month and 1 day to register and then start allowing for VAT
So for example if the threshold was breached on July 6th you have until September 1st to become VAT registered.

 

[Ozzy]

Not sure I do - he is just saying that we need to increase by 20% straight away. Then reissue the VAT invoice once we have the number.

You issue what is generally referred to as a 'proforma' invoice to your clients, using your price example above, the proforma would be £2,400 with a footnote on it to say VAT invoice will be issued in due course. That VAT invoice, when you have your VAT number, will then break it out as £2,000 plus £400 VAT.

You have to do this, and yes your public clients will be hit.

More general advice, I'd suggest reviewing your relationship with your accountant because based on what you're stated here it seems like they are not advising you as I'd expect an accountant to do. Your accountant and your solicitor should be close relationships in your business, regular contact with and be able to lean on them and seek advice and support when you need it.

 

[GentleGiant]

So when did the business actually breach the VAT threshold?
Seems odd that you are to be registered as you say ‘in a couple of days’
Usually when you breach the threshold you have the following month and 1 day to register and then start allowing for VAT
So for example if the threshold was breached on July 6th you have until September 1st to become VAT registered.

last month - we thought we would break it - asked him to register us, he got zero response and then did it via an alternative method and got it done straight away.

We will cope, ut appreciate the advice.

 

[GentleGiant]

More general advice, I'd suggest reviewing your relationship with your accountant because based on what you're stated here it seems like they are not advising you as I'd expect an accountant to do. Your accountant and your solicitor should be close relationships in your business, regular contact with and be able to lean on them and seek advice and support when you need it.

Thanks! Solicitor? Don't have one of those engaged. Guess I do not want horrific bills!

Need to rethink some of these people.

Feel very much alone in this business and we are learning as we go - suppose would love it if I could find a business mentor who can advise us how to expand etc. Lots to learn!

 

[Ozzy]

Thanks! Solicitor? Don't have one of those engaged.

Yep; from the outset make sure your contracts/terms with customers are proper. If you have any business partners you have the right shareholder or partnership agreement in place, and so on.
Have a good one who will know your business, and the time you hit a sticky situation (as we all do on occasions) they are on hand to give advice.

Need to rethink some of these people.

Yeah, there are a few accountants on here you could reach out to and see if one of them will be a good fit for you. You could also have a look through the member directory here for an accountant (and solicitor)

 

[DontAsk]

Not sure I do - he is just saying that we need to increase by 20% straight away. Then reissue the VAT invoice once we have the number.


We do not buy and sell goods - we are mainly a service business.

Yes we have purchases that are VAT included, but these have mainly been software, office items, website etc.

So if I have a quote for £2,000 I now need to make that £2,400

Which is fine for new quotes - but quotes issued last month or before when we found out are at £2,000 - I can't afford to give HMRC £400 of that figure or whatever the sums are.

If the job includes supplies that have VAT on them then that will be claimed in your VAT return so you can offset that amount when arriving at the new price. It isn't necessarily an instant 20% uplift on the old price. What matters is that 20% VAT is charged and reported, i.e. 1/6 of the final VAT inclusive figure.

If your accountant doesn't understand that, you may need to find a new one.

 

[Paul Kelly ICHYB]

he is just saying that we need to increase by 20% straight away.

Looks like a lazy accountant.

You/he needs to calculate the actual impact of VAT on your business. You can then adjust your pricing accordingly and then add VAT. Simply slapping 20% on will probably lose sales, but on those who accept, your profit will go up.

Write to clients and say that you have registered for VAT and from x date all new invoices will account for VAT. You could also adjust current quotes to take that into consideration.