VAT and Ltd to do or not to do?

[J.C.E]

just finished going through my books before I past them to my accountant for 16/17 (not that I dont trust him!
this was my 1st full year as self employed (a few months started as subbying but then the rest full time for my buisness)

I invoiced around 72.5k with 42k expenses (pretty high as 1st year tool happy etc)
-not bad not great i know...

I have emailed my accountant these questions but would like opinions from people actually previously in/are in my boots (steel toe ones)

I target/ and succesfully do- try work for builders (extentions/refurb/rewires etc
do these companies are vat registered...

so am I correct in saying- no brainer to go vat registered (makes no difference to my vat registered builder clients- but I can claim back vat on expenses/materials)
-but obviously have to be 20% more expensive to any of my clients that are not vat
correct?

2nd question- going Limited- my thinking behind it- looks more professional plus the added secuirty- should I be thinking anything else

cheers guys/gurls

 

[Wilko]

Q1 yes on the 20% more.
Q2 you can keep some of the vat you charge under some arrangements with HMRC, check into that one.

 

[Leesparkykent]

No Brainer imo. Going limited limits your personal liability and as for going VAT registered again a no Brainer as most of your clients are VAT registered so makes no difference to them. If you don't go VAT registered you are limiting your growth as company plus with your turnover it's not going to be long before you go over the threshold in a 12 month period which from HMRC point of view doesn't have to correspond with your financial year.

 

[andyb]

As Lees says, it looks like your turnover will take you over the vat threshold sometime during the second year anyway. So you probally have no choice.

Small point but it shouldn't make you 20% dearer with your private clients because you're allready charging them the vat on materials, as you have to pay it. Just 20% dearer for your labour.
Same in reverse for vat registered builders. You will be 20% cheaper on materials but your labour will be the same as they can claim the vat part back.

 

[Octopus]

It's not up to you about VAT as your turn over rises... The threshold is currently £84 k ...... Then you have to go vat registered.

 

[Darkwood]

The balancing game with VAT registered is mainly domestic, if you work for companies who are vat registered themselves then they can only claim VAT back off your invoices if you are VAT registered, the problem lies if you do work for non VAT registered people like small businesses or the general public, this means your labour will be subject to 20% VAT to them and make you uncompetitive to those not registered ... you need to talk to your accountant and discuss your goals and your main client base before you just go VAT registered..... I did it on day one, because I do industrial and no domestic thus all my customers are themselves VAT registered thus I can compete and appeal to them.

 

[SJD]

I agree with darkwood, for domestic work VAT registration can make you less competitive. I do mostly domestic work, and as an average, labour is around 75% of what I invoice, so I would average out at circa 15% dearer to domestic customers who can't claim back VAT. I keep comfortably under the threshold so there is no danger of HMRC telling me I have to register.

If someone wants expensive fittings, I might get them to buy them directly, to keep these materials out of my turnover (and it also helps cash flow).

If you are doing domestic work with a builder, you might consider working directly for the end customer, i.e. invoice them directly. This is what I do, I've never worked directly for a builder, and is also saves me worrying if the builder will pay up!

 

[Deleted account]

You can do both. Be a limited vat registered company and be self employed for say domestic work.

Big but...

You must keep the 2 businesses separate in your accounting. Tax man may look a little harder at you under these conditions, but it's perfectly legal and if you have a good accountant it shouldn't be a problem.

 

[Octopus]

^^ really?

 

[Deleted account]

^^ really?

Yes I have done it in past, but it was 2 different types of business.

My previous employer also did it. He employed me in ltd business and worked self employed.

 

[Octopus]

^^ sounds like a lot of hassle,

 

[netblindpaul]

Not sure that the VAT threshold is a rolling 12m either I thought it was a rolling 3m extrapolated.
I would suggest that you verify that.

 

[Octopus]

^^ hmrc can apply the vat threshold "period" whenever they want....

 

[andyb]

Not sure that the VAT threshold is a rolling 12m either I thought it was a rolling 3m extrapolated.
I would suggest that you verify that.

As far as I'm aware it's any 12 month period. At least it always was and I'm sure they've not changed it.

 

[Paulgwat]

You can do both. Be a limited vat registered company and be self employed for say domestic work.

Big but...

You must keep the 2 businesses separate in your accounting. Tax man may look a little harder at you under these conditions, but it's perfectly legal and if you have a good accountant it shouldn't be a problem.

I would get some decent advice before even contemplating this - I believe the term is VAT disaggregation and if the VAT man isn't 100% percent convinced by the setup then you are in for some interesting times.

I looked into forming a Limited property development company with a new business partner and running it alongside my limited electrical business as I wanted to avoid hitting the VAT threshold issue on the predominantly domestic electrical business if I lumped in high turnover but lower % profit property development.

I got advice from 3 accountants all of whom said I would be treading a fine line, both businesses would have to be able to demonstrate ownership of own tools, vans etc and most importantly demonstrate zero overlap of type of work undertaken and customer base.

In the end I kept the existing electrical business and do the development work through that company without the business partner and am VAT registered with no detrimental effects thus far.

Your mileage may vary, and things may be different with the limited co versus self employed route, the key here is getting advice.

Paul