VAT is Killing my Business!

Discussion in 'Accounts & Finance' started by HD123, Feb 26, 2019.

  1. HD123

    HD123 UKBF Newcomer Free Member

    3 1
    Hi, I'm new here. I have been running my business for 5 years. In the last year I have had to become VAT registered. My turnover is not going to increase from this point as there aren't the hours in the day, and when you take the VAT amount off the turnover it is the same as the VAT threshold - yet I'm having to hire more staff to run the service and as its service based there is extremely little I can claim VAT back from. I cannot put my prices up as they are as high as they can be but I don't want to limit my business and turning down that £20,000 of business as it will restrict me so much and will reflect negatively on new and existing clients. I've looked at hiring out my company to my employees and I can't see it working. Is there a way of part hiring out the overspill part of the business? Is there anyone who could advise on other solutions or what type of person would you advise talking to about this? Accountant/business mentor etc? Thank you.
     
    Posted: Feb 26, 2019 By: HD123 Member since: Feb 26, 2019
    #1
  2. Chris Ashdown

    Chris Ashdown UKBF Legend Free Member

    10,617 2,149
    What service industry are you in?
     
    Posted: Feb 26, 2019 By: Chris Ashdown Member since: Dec 7, 2003
    #2
  3. HD123

    HD123 UKBF Newcomer Free Member

    3 1
    Hi Chris, its pet care and therapies. I employ a small team of staff to do this.
     
    Posted: Feb 26, 2019 By: HD123 Member since: Feb 26, 2019
    #3
  4. STDFR33

    STDFR33 UKBF Big Shot Free Member

    3,923 996
    If you can't sell more, sell less and remain under the threshold.
     
    Posted: Feb 26, 2019 By: STDFR33 Member since: Aug 7, 2016
    #4
    • Thanks Thanks x 1
    • Useful Useful x 1
    • List
  5. HD123

    HD123 UKBF Newcomer Free Member

    3 1
    STDFR33 - this is looking likely to be our only option. Its horrible when we are a successful business and people love what we do and it means turning away around 15 clients a week. I've looked at all the different options but can't find a solution other than this. I am concerned that we'd loose our credibility staying small but I can't spread myself any thinner to operate too far past the point of where we currently are.
     
    Posted: Feb 26, 2019 By: HD123 Member since: Feb 26, 2019
    #5
  6. Root 66 Woodshop

    Root 66 Woodshop UKBF Big Shot Free Member

    4,905 1,318
    Legal beagles may be able to help with this, but... Could you not split the company into two?

    Surely there's two different sides to the business, therefore could be split... but as I said, I'm not sure if that would be legal to do or not.
     
    Posted: Feb 26, 2019 By: Root 66 Woodshop Member since: Nov 22, 2011
    #6
  7. STDFR33

    STDFR33 UKBF Big Shot Free Member

    3,923 996
    The two businesses could be aggregated for VAT purposes.
     
    Posted: Feb 26, 2019 By: STDFR33 Member since: Aug 7, 2016
    #7
  8. STDFR33

    STDFR33 UKBF Big Shot Free Member

    3,923 996
    Have you looked into the Flat Rate Scheme? That could soften the blow.

    If you don't want to scale down, you need to bite the bullet and look at ways to increase your turnover and profits.
     
    Posted: Feb 26, 2019 By: STDFR33 Member since: Aug 7, 2016
    #8
  9. Blaby Loyal

    Blaby Loyal UKBF Ace Full Member

    1,016 193
    Nice thinking but it may fall foul of the "disaggregation" malarkey. Pet care and therapy are far too similar for my tiny way of thinking.
     
    Posted: Feb 26, 2019 By: Blaby Loyal Member since: Jun 12, 2018
    #9
  10. Root 66 Woodshop

    Root 66 Woodshop UKBF Big Shot Free Member

    4,905 1,318
    @Blaby Loyal very true... if that's the case though, how do franchises work against this? could that be a possibility? From what I know about a particular franchise in our line of work, each franchise is recognised as a separate company trading as... [naflockies.com] :) Could that be a way forward?
     
    Posted: Feb 26, 2019 By: Root 66 Woodshop Member since: Nov 22, 2011
    #10
  11. DavidWH

    DavidWH UKBF Enthusiast Free Member

    1,449 266
    VAT shouldn't really be included in your turnover.

    It sounds to me like you were perhaps charging £10.00 for something, and now you're VAT registered you're still charging your customer £10.00 and paying the VAT from it, meaning you only see £8.33.

    In theory, VAT should be added on top of the original £10.00 you charged, meaning you charge the customer £12.00, £10 for you, £2.00 to HMRC.

    Of course, if you're dealing with B2C, who aren't VAT registered, it's a price hike, that may turn some away.
     
    Posted: Feb 26, 2019 By: DavidWH Member since: Feb 15, 2011
    #11
    • Thanks Thanks x 1
    • Useful Useful x 1
    • List
  12. Blaby Loyal

    Blaby Loyal UKBF Ace Full Member

    1,016 193
    I suppose that's one of the beauties of franchising. Hopefully someone with more knowledge of VAT than wot I've got will come along and give us some more focussed guidance.
     
    Posted: Feb 26, 2019 By: Blaby Loyal Member since: Jun 12, 2018
    #12
  13. STDFR33

    STDFR33 UKBF Big Shot Free Member

    3,923 996
    A franchisor and franchisee don't have fundamental links such as:

    Ownership.

    Bank accounts.

    Equipment.

    Financial dependency.
     
    Posted: Feb 26, 2019 By: STDFR33 Member since: Aug 7, 2016
    #13
    • Thanks Thanks x 2
    • Useful Useful x 1
    • List
  14. STDFR33

    STDFR33 UKBF Big Shot Free Member

    3,923 996
    Posted: Feb 26, 2019 By: STDFR33 Member since: Aug 7, 2016
    #14
    • Thanks Thanks x 1
    • Useful Useful x 1
    • List
  15. Mr D

    Mr D UKBF Legend Free Member

    16,608 1,847
    Going just over the threshold is not a great place to be. Push hard to grow the business or cut hours / services to be below the threshold and deregister.
    And hope the treasury doesn't reduce the VAT threshold any time soon. They appear aware of companies avoiding VAT registration by keeping below threshold.

    The expected method of VAT is that you charge the buyers the extra money and they pay it. You just collect the money and pass onto HMRC their share.
    Some business owners choose to pay the VAT themselves out of business profits. Of those some have not found out whether buyers will pay more.
     
    Posted: Feb 26, 2019 By: Mr D Member since: Feb 12, 2017
    #15
  16. Chris Ashdown

    Chris Ashdown UKBF Legend Free Member

    10,617 2,149
    From what you have stated
    I cannot put up my prices any higher
    I am turning down about 15 clients a week
    I am not charging my customers the vat

    Rather than worry about what your customers will pay, just tell them you have had to register for vat due to outstanding customer support for your services and like vets and other professionals, unfortunately you now have to add on the vat to there bills

    If you lose some customers you have a waiting list to take their place, just dont drop the vat charge on them, notify them by email, letter or phone about the new structure
     
    Posted: Feb 26, 2019 By: Chris Ashdown Member since: Dec 7, 2003
    #16
  17. Scalloway

    Scalloway UKBF Legend Free Member

    15,202 3,219
    There is a school of thought that if you are turning business away you should increase prices to the point where you don't have to.
     
    Posted: Feb 26, 2019 By: Scalloway Member since: Jun 6, 2010
    #17
    • Thanks Thanks x 1
    • Useful Useful x 1
    • List
  18. AllUpHere

    AllUpHere UKBF Ace Free Member

    3,046 1,096
    If VAT can kill your business, you don't really have a business. Either it's viable to scale, or it's not. If you have to keep it so small you are under the VAT threshold, you are playing at it.
     
    Posted: Feb 26, 2019 By: AllUpHere Member since: Jun 30, 2014
    #18
  19. Mark T Jones

    Mark T Jones UKBF Big Shot Full Member

    3,457 1,036
    There is a big element of truth in this

    It’s a great time to stand back and decide whether you are simply seeking an income or building a business
     
    Posted: Feb 26, 2019 By: Mark T Jones Member since: Nov 4, 2015
    #19
  20. BustersDogs

    BustersDogs UKBF Ace Free Member

    1,294 237
    Hey there, I had this same problem (twice) in my business. The first time my accountant told me to change to a limited company, which 'resets the clock' so I could start again from 0. A later accountant told me that wasn't quite right, so I'm not sure if it's right for you, but check. My idea was to redo my budgets taking into account vat FROM THE START this time, so when I hit the threshold the second time I was able to register on the flat rate and pay VAT. My company was already the most expensive in the area, and it unfortunately co-incided with the big increase in national minimum wage to the 'living' wage (although of course it's not a living wage at all). My staff I already paid higher than that, but to keep the difference between the salary of a new started, and someone with many years experience I had to increase all wages just the same. And of course pensions reared its ugly head at about the same time.

    We looked at separating the business into pet care as one business, and training of owners with dogs, and the training I give to other pet care professionals, as well as ebooks I write as a separate one, but that side of the business was much smaller and didn't make much difference. We looked at moving other services over, ones that only I covered (not my staff), but both companies having the same director, using the same vehicles and equipment etc, I felt that wasn't a risk I wanted to take.

    I did have a drop in profits, although was still profitable, but when a few of my staff left after a couple of years, I had to make a decision. Push past by growing much bigger to get my full profits back, or downsize to drop under the threshold.

    As I had some turmoil with my health, I decided to downsize and now work alone again. I'm looking at new directions for my business, which might not even get to the vat threshold again, but this time I will be ready not just to meet it, but go flying past.

    Or I'll semi-retire.

    Hope that has given you some ideas, but was quite therapeutic to type out. :D
     
    Posted: Feb 27, 2019 By: BustersDogs Member since: Jun 7, 2011
    #20