VAT

[ukconstructionguru]

Hi,

Small retail business that sells online will be approaching the VAT reg threshold in the next few months.

Envisaging the effect of VAT on the business etc, thinking of a few options. Background:

- UK Ltd Company
- Sole Director
- Retail Sector (Fashion Accessories)


1. Register for VAT, agree a reduced rate of VAT (but can't reclaim input VAT). This would be the best option as the only real expenses are the items (with VAT) and postage which I don't believe has VAT.

So if we did the usual 20% it wouldn't work out great as there wouldn't be much VAT on expenses to offset.



2. Register a separate line of the business as a sole trader, thereby having another 70k threshold.

This wouldn't be artificial as it would be for kids items only, rather than the other (ltd company) which deals for adults.

Or would this fall foul of the rules and considered deliberately avoiding VAT?



3. Any other option?!


Any help is much appreciated, want to make sure we're doing it right. We are looking at the future test (looking forward etc) for VAT and we are ok at the moment but will need to do something in the next 2 to 3 months.

Many Thanks

 

[Bob]

Separating the business could be risky. Search Google on "VAT disaggregation" and you will get a plethora of opinions

 

[ukconstructionguru]

Yeah - would definitely be an agressive strategy!

Maybe I'd seek prior approval from HMRC before going down that route, separate resources (sep office, sep assets etc) are a factor if I remember - they certainly don't like it!

 

[Talay]

You cannot choose the level of VAT you would like. It is 20%, no argument.

You could look at the flat rate scheme if you want but if you are a reseller, you should have significant VAT inputs to offset. If you are a labour intensive business then flat rate can be useful.

Registering a new business to avoid VAT has been thought of long ago and if you get caught, the penalties are severe. Even if you have separate companies they can be counted as one and the same for VAT purposes. Kids and adults doesn't make any difference, it would all be the same. Finding true separation is not easy and when you push the legal envelope, you risk asking HMRC to make the decision for you and if they don't agree then .......

It is a pain in the backside I agree but when I set something up I put in the VAT from day one. Unless you are going to operate under £70k, then you have to really.

 

[ukconstructionguru]

Hi Talay,

Thanks for your message. Of course you can't decide what level of VAT you want, you got what I was referring to, the flat rate scheme.

It is labour intensive so would definitely be flat rate - the expenses are minimum and it would work out a lot better on a flat rate scheme.

I very much agree that the likelihood is that I will have to VAT register and that any separation would be artificial and would fall foul of the relevant legislation.

It's just annoying that smaller seller will instantly be able to beat us on price but then again that would be the same in most industries.

Many thanks

 

[Talay]

Hi Talay,

Thanks for your message. Of course you can't decide what level of VAT you want, you got what I was referring to, the flat rate scheme.

It is labour intensive so would definitely be flat rate - the expenses are minimum and it would work out a lot better on a flat rate scheme.

I very much agree that the likelihood is that I will have to VAT register and that any separation would be artificial and would fall foul of the relevant legislation.

It's just annoying that smaller seller will instantly be able to beat us on price but then again that would be the same in most industries.

Many thanks

If you don't fit into a precise flat rate sector, there is, at some risk, the potential to utilise a more favourable sector rate. Again, it is bordering on having one foot too far outside the boundary for HMRC's liking.

I'm working on a mini franchise system I hope to get past HMRC as separate entities and thus avoid having to charge VAT. Drop me a PM if interested.

 

[ukconstructionguru]

Hi,

Looking at the flat rate sectors I would say that there are two possibilities:


1) Retailing food, confectionary, tobacco, newspapers or children's clothing = 4%

2) Other Retail = 7.5%


Is there a way of having two separate rates or a bespoke rate? i.e. for childrens hats, scarves, clothes it would be 4% and for adults it would revert to 7.5%....

I imagine that the answer is no and if I'm selling a mix of items it would all be at 7.5%

Cheers

 

[Talay]

Not sure about that one.

Supermarkets sell items with varying VAT rates but they are not on the flat rate scheme.

 

[Bob]

Hi,

Looking at the flat rate sectors I would say that there are two possibilities:


1) Retailing food, confectionary, tobacco, newspapers or children's clothing = 4%

2) Other Retail = 7.5%


Is there a way of having two separate rates or a bespoke rate? i.e. for childrens hats, scarves, clothes it would be 4% and for adults it would revert to 7.5%....

I imagine that the answer is no and if I'm selling a mix of items it would all be at 7.5%

Cheers

Good guess

 

[Anna Chandley]

Remember that under the flat rate scheme you would be paying the flat rate percentage on all turnover including the zero rated sales of childrens clothes on which you charging VAT at 0%.

So you sell a child's item of clothing for £20 with £0 VAt but have to pay £1.50 in VAT to HMRC under the flat rate scheme (assuming a 7.5% flat rate).

Anna