VAT is Killing my Business!

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

  1. STDFR33

    STDFR33 UKBF Big Shot Free Member

    3,785 934
    The clock restarts when you transfer to a limited company only if you are not VAT registered (or should be VAT registered).
    So incorporating would not help here where the OP is already VAT registered.
     
    Posted: Feb 27, 2019 By: STDFR33 Member since: Aug 7, 2016
    #21
  2. Energise Accounting

    Energise Accounting UKBF Enthusiast Full Member

    992 164
    VAT is not killing your business. you need to put your prices up by 20% to cover the VAT and e-mail all your clients for the reason why. If they are happy with your service very few of them will move and the few that do should be easy to replace.

    If becoming VAT registered is going to do damage to a business then you must ask yourself is it really a business.
     
    Posted: Feb 27, 2019 By: Energise Accounting Member since: Sep 24, 2014
    #22
  3. AllUpHere

    AllUpHere UKBF Ace Free Member

    2,909 1,030
    They wont need to put their prices up by 20 % to cover the VAT. It's a common misconception.
     
    Posted: Feb 27, 2019 By: AllUpHere Member since: Jun 30, 2014
    #23
  4. Energise Accounting

    Energise Accounting UKBF Enthusiast Full Member

    992 164
    Of course you put your prices up by 20% if a Dogs haircut costs £40.00 you Add VAT of 20% total cost to customer £48.00 an increase of 20%. Any VAT reclaimed you have already paid
     
    Posted: Feb 27, 2019 By: Energise Accounting Member since: Sep 24, 2014
    #24
  5. Newchodge

    Newchodge UKBF Big Shot Free Member

    12,110 3,128
    While VAT on £40 is £8, the total cost to a business of registering for VAT is not as much as that, so the business owner can choose whether to increase their profit by the amount of VAT they always paid but can now reclaim, or to share that reduction in their cost with clients.
     
    Posted: Feb 27, 2019 By: Newchodge Member since: Nov 8, 2012
    #25
  6. Mr D

    Mr D UKBF Legend Free Member

    14,956 1,630
    So could perhaps charge 20% VAT but only increase prices by say 12% or 15%. Presuming that at least some of their outgoings don't have VAT to reclaim.
     
    Posted: Feb 27, 2019 By: Mr D Member since: Feb 12, 2017
    #26
  7. AllUpHere

    AllUpHere UKBF Ace Free Member

    2,909 1,030
    As others have said, the OP is trying to stop VAT killing her business. Might be time for a little more thought than just wacking 20% on everything.
     
    Posted: Feb 27, 2019 By: AllUpHere Member since: Jun 30, 2014
    #27
  8. Chris Ashdown

    Chris Ashdown UKBF Legend Free Member

    10,332 2,097
    Buyers understand vat at 20% so why not charge it, the vat recovered in purchases is just a bonus to the company, or register for the small traders system (forget what it's called)
     
    Posted: Feb 27, 2019 By: Chris Ashdown Member since: Dec 7, 2003
    #28
  9. AllUpHere

    AllUpHere UKBF Ace Free Member

    2,909 1,030
    Have you read the OP? They are of the opinion they wont have a business if they have to raise prices by 20%
     
    Posted: Feb 27, 2019 By: AllUpHere Member since: Jun 30, 2014
    #29
  10. Mr D

    Mr D UKBF Legend Free Member

    14,956 1,630
    But do they know that?

    OP is currently turning away clients with the prices as they are.

    We can be scared of increasing prices - when the buyers don't share the same fear.

    Luckily Apple, Samsung etc don't appear to have the same belief. Or we wouldn't have new expensive phones....
     
    Posted: Feb 27, 2019 By: Mr D Member since: Feb 12, 2017
    #30
  11. AllUpHere

    AllUpHere UKBF Ace Free Member

    2,909 1,030
    You are right, we can only go on the info we are given though. My point really, was that people seem to think they need to add 20% to their prices in order to stand still when they register for VAT. They dont.
     
    Posted: Feb 27, 2019 By: AllUpHere Member since: Jun 30, 2014
    #31
  12. Mr D

    Mr D UKBF Legend Free Member

    14,956 1,630
    We just need to show the 20% VAT.
    Increase can be less, perhaps a lot less. Can even be more.
    This time of year may have a few cost increases to factor into pricing too. I'm in the middle of working out new pricing for April onwards, some stuff increasing by 10% retail price and I'm not VAT registered and not planning to register soon.
     
    Posted: Feb 27, 2019 By: Mr D Member since: Feb 12, 2017
    #32
  13. consultant

    consultant Your Business Community Staff Member

    5,399 749
    @HD123 I see this far too often, where a business is growing, hits the threshold and then says adding 20% will kill their business. Ultimately, there is only one way to prove that! It is a mindset you need to overcome. In some cases, very scaleable and profitable businesses closed because of the owner's narrow mind.

    To soften the blow, tell your clients that you now have to charge VAT, however, you understand this may be a big blow, so will 'split the cost' i.e. put prices up by 10%. This allows you to be compliant and keep your business.

    You will not lose all of your clients. You might not get the 15 extra a week, but, if people are happy with the service, they will stay with you.

    BTW, when was the last time you generally increased prices?
     
    Posted: Feb 27, 2019 By: consultant Member since: Jan 21, 2008
    #33
  14. MJ Holohan

    MJ Holohan UKBF Contributor Full Member

    53 10
    Hi. Sounds like your business is doing well. It sounds like you are going to need to charge VAT on sales and pass this onto customers. Unfortunately, I don't think there is any way around this. If you are turning away customers maybe you are underestimating the potential to charge more to customers!!
     
    Posted: Feb 27, 2019 By: MJ Holohan Member since: Dec 27, 2018
    #34
  15. Energise Accounting

    Energise Accounting UKBF Enthusiast Full Member

    992 164
    As mentioned earlier the flat rate scheme could be a option. If they are turning away clients there is a possibility they are selling there services to cheap to start with.
     
    Posted: Feb 27, 2019 By: Energise Accounting Member since: Sep 24, 2014
    #35
  16. ecommerce84

    ecommerce84 UKBF Regular Free Member

    499 139
    You don’t have to jump straight in at the deep end - there are a lot of increments between 0% and 20%.

    I would put prices up by 6 or 7% and see what happens.

    If you don’t lose any customers notch them up a couple of percentage points again.

    Keep going until you do lose a customer or 2, the customers you’re turning away will replace the ones you lose.
     
    Posted: Feb 27, 2019 By: ecommerce84 Member since: Feb 24, 2007
    #36
  17. I_DO_MARKETING

    I_DO_MARKETING UKBF Regular Free Member

    373 97
    Putting prices up is always scary. Customers always want to pay less, it's natural.
    I would bite the bullet.
    a) build an armoury of arguments for yourself and your customers to explain why they don't really want the cheapest option.
    b) make the increase out of separate extra products and services that the customer could potentially opt out of one or more rather than turning tail completely
    c) try and get 25% extra out of each customer, because you deserve a pay-rise.
    d) look around for cost savings in case b) happens
    e) enjoy losing a few of the high maintenance, low margin whingealot customers. They take up 80% of your time for no value. You will prolly be surprised and find some of these turn into your most valuable customers even after doubling their prices.
     
    Posted: Feb 27, 2019 By: I_DO_MARKETING Member since: Oct 24, 2015
    #37
  18. Mr D

    Mr D UKBF Legend Free Member

    14,956 1,630
    Some of us love our pets. We will spend money on them to get the best treatment, best care etc.
    Don't discount what people will pay for the service they expect for their loved one.
     
    Posted: Feb 27, 2019 By: Mr D Member since: Feb 12, 2017
    #38
  19. Financial-Modeller

    Financial-Modeller UKBF Regular Full Member

    317 88
    doesn't accord with

    Whilst your VAT issue is visible and of concern to you, you probably need to explain why you're hiring more staff to do the same amount of work. I would guess that is where your problem lies.

    Regarding the VAT point, and assuming that you enjoy repeat business, the obvious answer is to increase prices by x% (where x will provide a similar net profit to you after adjusting for VAT registration, so somewhere between 0% and 20% probably) and simultaneously launch a loyalty programme so that you regular repeat customers see a smaller (or zero) increase in the price they pay.
     
    Posted: Feb 28, 2019 By: Financial-Modeller Member since: Jul 3, 2012
    #39
  20. paulears

    paulears UKBF Big Shot Full Member

    3,839 956
    I've always been a bit mystified by why people assume it increases prices by 20%, when it actually means many of your supplies will effectively cost less. The suppliers have been charging you 20% too - so the £12 bottle of product now really costs you £10? Loads of your business expenses will include VAT - so the net amount you pay to the VAT man each quarter is the only thing that matters.
     
    Posted: Feb 28, 2019 By: paulears Member since: Jan 7, 2015
    #40