Vat

[ricky776]

My company is getting close to having to become Vat registered

what I'm worried about is we have a lot of customers who pay via direct debit as little as £18.30 a month and they have signed a 12 month contract so once we hit this £82k what's the best way to deal with them as I'm going to lose Customers as its not worth paying the vat out of the money we take

Any new customers we will add the 20% on top so when we have to become vat registered then we can take it out of what there paying already

Any ideas

 

[arnydnxluk]

I guess you'll need to compare the two options and see which is going to work out best in your scenario, that's the cost of having a growing business and hitting the VAT threshold.

Some thoughts which may help with your decision:
- Is there any way your costs may be reduced in future? (If so, swallowing the VAT cost may be worth it for now)
- Do your customers have any word of mouth or future sales value? (If so, you may want to ensure they stay on board by swallowing the VAT cost for now and keeping quiet)
- Will including the VAT in the existing price reduce profits so much that you can no longer grow at your existing rate? (If so, you may have no choice but to add it on)
- You could potentially add the VAT on but renegotiate pricing with those who are unhappy about the changes.

If you have low costs, the VAT Flat Rate Scheme may be of interest to you.

 

[ricky776]

What I think we are going to do is charge any new customer who joins us an extra 20%
For example £18.30 will go to £21.99 it's the only way I'm going to be able to do it and take a hit on our old customers

It will be just interesting to see if this increase will lose us sales but there is nothing we can do about it once we have a vat number then we can give them the ex vat price etc

 

[john1989]

Would the flat rate scheme soften the blow?

 

[Edith@TerraNetwork]

Leaving prices unchanged for existing clients, and raising prices for new orders only is a common practice sometimes called "grandfathering", it's something I do myself in my business as a thank you to loyal clients who have stayed with us over the years and it pays back in word of mouth and good reviews.

Having said that, if you need to charge VAT for everyone to keep your business profitable, then you may not be able to afford keeping prices lower for existing clients.

I'd recommend to carefully look at the figures, compare your prices to competitors and then make a decision. If customers are happy with the service, then retention rates may be good even with a price increase. And any customers of yours who are VAT registered themselves can of course claim back the VAT with 0 impact to themselves.

 

[ricky776]

Thanks for the replies

Since posting this I have spoke to a few customers and most of them are already VAT registered so I reckon 70% won't mind it being added

 

[Edith@TerraNetwork]

That's good news If you want to add VAT for all clients, you could also soften the transition by giving non-business clients a discount for a few months or first year.