Vat Reg For Wedding Photographer

[hummer001]

Help needed please. i found out today that i have to register for VAT. Im a full time photographer specializing in wedding photography and a tiny bit of studio work. Now all story books are VAT exempt i cant claim on those but i do know i can claim on past and future equipment. BUT i dont spend thousands every year on cameras etc. All my clients are not vat reg so im losing alot. Any ideas on what i can do? thanks

 

[Spongebob]

You are in the classic nightmare situation of a small business with very low VAT inputs offering services to the general public. Stepping over the VAT registration threshold can literally cost the business upwards of £150 per week, in addition to the extra administration work involved.

Once you register for VAT, you have to charge VAT on all your sales invoices. This means that you either have to add 20% to all the prices your customers pay, absorb the VAT into your existing pricing structure, or do a bit of each resulting in your customers paying say 10% more and you absorbing the rest.

Adding 20% VAT to the prices currently charged is generally commercial suicide. Would your customers happily pay an extra 20% for exactly the same service? Of course not - if they would, you'd be charging that already!

Absorbing the VAT into your current prices is in effect a direct revenue cut of 16.7%. On a turnover of £70k this is a cost to you of nearly £12k per year. Ouch! Your very low level of inputs means that pretty much all you can claim back is the VAT on your petrol receipts!

So what to do?

Many on this forum will tell you that you must take it on the chin and register for VAT. Your turnover has exceeded the registration theshold and so there is no alternative. Some will add that all growing businesses have to cross this bridge at some point and that the short-term loss in revenue will more than be made up by further expansion. If you want to expand the business and see yourself at the head of a wedding photography empire with multiple staff then fine; I suspect however, that you simply want to pootle along by yourself.

I get the impression from your post that you currently operate as a sole trader. If this is the case then you could consider setting up a limited company. Instead of being 'Mike Hummer - Photographer' you could become 'Mike Hummer Photography Ltd'

This would have the effect of re-setting the meter. The company's turnover would start off at nil meaning that there was no requirement to register for VAT, and your personal business would cease. In order to prevent the problem recurring you would have to moniter constantly the company's turnover and make sure it never breached the VAT registration threshold within any period. It can often be cheaper in the long run to go on holiday for a month than to stay at home working if that entails stepping over the threshold.

Some more unscrupulous and devious individuals than I with less respect for the law might even suggest that the odd 'cash job' might be in order.

 

[David Griffiths]

This would have the effect of re-setting the meter. The company's turnover would start off at nil meaning that there was no requirement to register for VAT, and your personal business would cease.

If the sole trade has already crossed the VAT threshold, which is the impression given by the first post, that advice is not correct.

It would be correct if the sole trade had not reached the VAT registration limit.

If it has, then the sole trader is required to register for VAT and any successor to the business as a going concern would have to take account of the sole trades turnover in considering its own position.

If the OP has recently crossed the threshold (i.e it's not a late registration) the best approach might be to advise HMRC of that fact but apply not to be registered because there are good grounds to believe that the turnover will be below the threshold in future. This can be based on the fact that the last 12 months has been exceptionally busy and that bookings next year are down by comparision, or there was one large contract which pushed turnover off and is a one-off. It can even be a good reason to say that you are scaling back hours and perhaps only working a four day week, or taking extra holidays.

 

[Spongebob]

If the sole trade has already crossed the VAT threshold, which is the impression given by the first post, that advice is not correct.

It might not be strictly correct by the letter of the law, but in reality it is correct because that is exactly the effect it will have.

The OP is currently under the VAT office's radar. In my long experience that is the best place to remain if at all possible.

 

[David Griffiths]

It might not be strictly correct by the letter of the law, but in reality it is correct because that is exactly the effect it will have.

The OP is currently under the VAT office's radar. In my long experience that is the best place to remain if at all possible.

We've had this discussion before. You say that "it's not strictly correct by the letter of the law"

I say that it's an illegal evasion of tax.

That's two terms to describe the same action. The OP needs to know exactly where he or she stands and using weasel words to try to make an illegal act sound as if it's OK does them no favours.

Of course you might know when HMRC accepted a defence of "this bloke on a forum said it was OK)

 

[Spongebob]

David,

I disagree.

Help needed please. i found out today that i have to register for VAT.

This suggests to me that the OP has just breached the registration threshold. Therefore he can quite reasonably close his existing business now without having to register for VAT as there is no retrospective tax owing. He could simply inform HMRC that his period of self-employment has come to an end.

I see no reason why he could not simultaneously start a limited company, becoming director and employee. This after all, is what most accountants routinely recommend self-employed people do in order to reduce their liability for income tax.

There would be absolutely nothing out of the ordinary in taking these actions. It happens hundreds if not thousands of times every day. The chances of HMRC discovering or even suspecting that the motive for incorporation was to avoid VAT registration are miniscule. The VAT office after all, doesn't even know he exists.

Like the majority of people, the level of my respect for any particular rule or regulation is in direct proportion to the chances of being caught for breaching it and the potential subsequent consequences. It is a question of practicality, not morality or 'ethics'.

For the potential rewards available to the OP and the very remote possibility of falling foul of HMRC, I would suggest that most people would consider my approach in this scenario to be 'worth a punt'.

At least the OP now knows all the facts so that he can make an informed decision.

 

[Walkol]

There would be absolutely nothing out of the ordinary in taking these actions. It happens hundreds if not thousands of times every day

As does speeding. It is however, still illegal.

 

[David Griffiths]

I disagree.

I think Mandy Rice-Davies had that one covered.

This suggests to me that the OP has just breached the registration threshold. Therefore he can quite reasonably close his existing business now without having to register for VAT as there is no retrospective tax owing. He could simply inform HMRC that his period of self-employment has come to an end.

And if he takes over the business in a limited company, he has an immediate responsibility to register based on past turnover of the sole trade.

I don't think that it's like speeding at all. I think that it's like finding a wallet with £10,000 in it and keeping it, hoping that you haven't been seem or picked up on CCTV. In other words not being found out, like your advice in this case.

Drawing a parallel with incorporation to save income tax is also wildly off the mark. That's arranging affairs to save future taxes. You can't suddenly decide that you've been trading through a limited company for the last year and file your returns on that basis.

The OP is free to make up his or her own mind, but at least shouldn't be under the misapprehension that it's all OK

 

[hummer001]

So in English. im Stuffed lol ?

 

[David A]

If it has, then the sole trader is required to register for VAT and any successor to the business as a going concern would have to take account of the sole trades turnover in considering its own position.

If follows then that the OP should distance himself from a 'successor as a going concern' scenario.

Becoming a sole director limited company is more open to attack by the VAT inspector. It would surely be less problematical if the company had two directors. Maybe instead of 'Mike Hummer Photography Ltd' it could be 'Hummers Photography Ltd'.

Hopefully there is a spouse around, or maybe another relation (who might even act as a director in name only).

One of our gas engineers operates as a sole prop as well as having a Ltd Co run by him and his wife. He has the gas certification, and he does all the gas work. General plumbing, such as installing electric water heaters, bathroom replacements etc are done by the Ltd Co. Yet apart from subbing out the electric work, he does all the rest himself. Officially, for the Ltd Company his wife does all the admin and paperwork - yet practically he does it all himself as he goes along.

This structure has meant that his total turnover for all the businesses are significantly over the VAT limit.

 

[Mitchells Bristol]

i found out today that i have to register for VAT. /quote]

Sorry to drag back to the original post - but what do you mean by this? Has your turnover already breached the threshold - what was your turnover for the last 12 months?

I'm wondering whether you can apply for VAT exception on the basis of temporarily exceeding the threshold...might be worth looking into if it isn't too late!

 

[David Griffiths]

I It would surely be less problematical if the company had two directors. .

It wouldn't matter if the company had 240,000,000 directors. It would take over a business as a going concern. The business that it's taken over was liable to register for VAT. Therefore the new business (with one director or many) must count the original turnover when deciding if it's over the VAT limit.

 

[David A]

So in English. im Stuffed lol ?

Not at all.

As has been suggested as a last resort you could, as David Griffiths has suggested, apply NOT to be registered on the basis that going over the threshold was temporary.

In the meantime, DON'T do any more work (or at least don't invoice).

It's the Budget next month, and the Chancellor might well increase the threshold again. If so, this might give you the headroom to trade as you have been.

 

[David Griffiths]

i found out today that i have to register for VAT. /quote]

Sorry to drag back to the original post - but what do you mean by this? Has your turnover already breached the threshold - what was your turnover for the last 12 months?

I'm wondering whether you can apply for VAT exception on the basis of temporarily exceeding the threshold...might be worth looking into if it isn't too late!

See post 3

 

[Claire Dymond]

Considering the huge losses, around 16% of income I would be inclined to do less weddings and stay under the threshold.

You will need to do many more weddings just to stand still.

Don't do anything dodgy to try and avoid VAT or it may come back and bite you on the backside, ask Mr Huhne and wife.

 

[kg100]

Can't you just split the business? EG hive off the actual taking of photos at weddings bit into a different LTD to split the turnover between two LTDs with both under the threshold?

As an aside, when I got married there was nothing that infuriated me more than venues, vendors and suppliers quoting a price excluding VAT. By definition, no VAT registered business is going to be getting married, so quoting prices exclusive of VAT as if the majority of couples are "Mr and Mrs Smith Ltd" is one of the most frustrating ways that some businesses try to disguise their prices.

 

[Scalloway]

Can't you just split the business? EG hive off the actual taking of photos at weddings bit into a different LTD to split the turnover between two LTDs with both under the threshold?

Because HMRC woud see it as artificial separation.