Hello
I'm in the throws of commencing self-employment, writing articles for trade magazines and I intend to try and write some books relating to the particular trade. It's going to be fairly small in scale, but since the magazines, etc will be VAT registered and book sales will be zero-rated, it seemed sensible to me to register for VAT.
Obviously, there won't be a lot in terms of costs, but I am going to need a new laptop and I will use my car for travelling to meetings with editors and to sites/libraries for research.
The Flat-Rate scheme looks very good, as I can charge an additional 20% on my invoices to magazine publishers, then only pay 12½% (11½% in the first year) of the gross amount over to HMRC, but I then can only recover actual input tax on purchases of capital goods costing at least £2,000 (net).
However, my car is currently in need of a service and some repairs (probably £500 of work before VAT) and as I said, I need a new laptop, but won't be paying as much as £2,000 (net) for it. I'd really like to be able to recover the VAT on those costs.
I understand that you can recover VAT on goods and services purchased prior to registration within certain time limits provided they haven't been consumed or disposed of.
My first question(s) is(/are) (i) can I join the flat-rate scheme from day 1 and still reclaim the pre-registration input VAT, or (ii) can I reclaim the pre-registration input VAT on day 1 and then opt for the flat-rate schem on day 2, or (iii) must I wait a little longer than one day?
Thinking longer term, I'm very hopeful that I can make my business profitable in the longer term by branching out into training and consultancy once I've made a bit of a name for myself. To that end, it seems sensible to adopt a structure that will be tax efficient in the longer-term and a friend of mine (who knows a bit about income/corporate taxes, but not VAT) has suggested that I could form an LLP with a limited company that I would own.
Am I right in thinking that my limited company and my LLP would be eligible to be treated as a VAT group and that that would then preclude the use of the flat-rate scheme?
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Replies (22)
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Throws?
Not actually answering the question at all but just pointing out that, in the first line of your question, you used the word "throws" when you should have used "throes".
Normally I would have ignored it but, seeing as you are aspiring to be a writer, I thought you might appreciate the clarification.
Sorry to have not answered the question and MTFBWY
Stick to the writing
"My first question(s) is(/are) (i) can I join the flat-rate scheme from day 1 and still reclaim the pre-registration input VAT, or (ii) can I reclaim the pre-registration input VAT on day 1 and then opt for the flat-rate schem on day 2, or (iii) must I wait a little longer than one day?"
"it seems sensible to adopt a structure that will be tax efficient in the longer-term and a friend of mine (who knows a bit about income/corporate taxes, but not VAT) has suggested that I could form an LLP with a limited company that I would own."
I'd stick to the writing and get a proper accountant. You seem to want to overcomplicate things when you don't even know the basics.
Thank you both for your very helpful input. Peter you are right; I will need an accountant, but I do need one that can answer what I think are valid questions.
Lets see how far you get
You need an accountant now and not one who suggests limited companies and LLPs. You are a writer and shouldn't forget it when planning intricate corporate structures that you will be paying an accountant a lot of money to deal with the accounts and tax.
You will spend more on accountancy fees for the unnecessary complexity than you will save on VAT.
Your accountant would tell you that messing around with repairs for your car when you are supposed to be a writer is silly. How much business mileage are you going to incurr as a writer?
You also need to be able to pay your accountant.
Peter
You're presenting a poor advertisement for the profession.
Unfortunately, I also don't know the answers to the OP's questions.
George
At least I am giving commonsense help.
What was this about an LLP? Would the limited company be the other partner in the LLP? Would one of the shareholders in the limited company be the LLP? The OP seems to be making things complicated when they are simply a writer.
If a client suggested anything as complicated as this for their "business structure" I would reject it. If you recommend such structures I hate to think what fees you charge your clients for unnecessary accounting. If that is how you do things then you are doing a disservice to your clients. I am helping my clients to be successful. I don't approve of accountants who inflate their fees unnecessarily - THAT is a poor advertisement for the profession.
General advice
If I may, here is the general advice I offer to try & be helpful.
Stay out of vat if you can. You can only claim for a portion of your vehicle cost & you may be best employed writing, rather than reading up on tax law & practice. Don't under estimate how much time this stuff can take - an hour here & an hour there soon adds up.
I advocate Ltd co in many cases where other do not simply because I have seen where a major customer going bust can wreck a sole trader. In your case however I suspect sole trader is best. Remember KISS (keep it simple). Concentrate on your writing as that is where the money is going to come from, worry about the other things a little later.
It seems a bit OTT for a 'small scale' enterprise
".... It's going to be fairly small in scale,..."
Much better to see if the business is successful before down such a complicated route. Also, unless you need the limited liability, there is no point in incorporating a business (and paying increased accountancy fees) unless there will be substantial tax savings .... and to make substantial tax savings you need substantial profits.
It could even benefit you to wait until the business is making substantial profits, and incorporate then, giving you a one-off benefit.
Get an accountant. They will review your business and projections and give detailed tax planning advice.
I'll answer one of the questions, then
Yes, you may register for FRS at the outset and recover pre-registration VAT - subject to the usual restriction to services, goods on hand, 6-month time limit etc.
BKD
How much VAT do you think the OP will be able to claim back from the car service and repairs given they are a writer and may not do very much business mileage?
My guess is that the VAT will be about £100 and the business mileage may be 10% if they are very lucky so that is £10.
Thanks again
Thanks for the further info everybody.
Peter, my understanding is that I can claim all the VAT on my car repairs according to this HMRC guidance. The bigger issue was the £1,200 laptop I'm looking at. It looks best for me to buy this before registration; thank you BKD.
Peter
I would say about £100. But that wasn't the question. The question was whether pre-reg VAT can be claimed, where the FRS is used from day 1. The answer to that is "yes".
Anna, you are correct.
So long as your car is used to some extent in the business you are able to claim back the full amount of VAT on repairs. The rule on motor fuel is quite different.
Anna
I didn't know about that rule. I have to accept it but it seems a bad rule. I usually think that you would be better off claiming 45p a mile as an expense but you have to do the sums.
BKD
It is usually best not to just answer the question but to think about what is best for the client.
Clients' interests
It is usually best not to just answer the question but to think about what is best for the client.
Of course it is. But Anna is not my client. Which is why my responses on AWeb tend to be factual answers to questions, rather than advice - for which I will not get paid.
I have no problem with those that do choose to offer such free advice - providing of course that it is correct.
More useful?
You don't think you should give a broader answer if you feel it would be more useful?
Nope
You don't think you should give a broader answer if you feel it would be more useful?
Because that's what I expect to be paid for - giving useful advice. As I say, I wouldn't criticise anyone else for giving free advice, it's just not my bag. Ask a straight question, and I'll give a straight answer. As has been said many times, though, answers on Aweb are no substitute for obtaining professional, paid-for, advice.
Further, when a client asks me a question, I'll often answer instead the question(s) that I think they really ought to be asking - but that is because I know my clients and their circumstances. I know nothing about anyone that poses a question on AWeb, so I prefer to stick to the questions actually asked. Again, just my preference - others may vary.
LLPs and VAT groups
Out of curiosity, I did a bit of research. BKD's beat me to the answer on one of the questions though.
An LLP can be a member of a VAT group, as it is a body corporate (see V1-28 para 55.2.2). A person cannot be in the FRS if they are "eligible to join" a VAT group (distinct from "eligible to form or join". I'm assuming that the suggested structure is Anna owns AnnaCo and Anna and Annco are members of the LLP. In that situation, AnnaLLP and AnnaCo can form a VAT group if they wish. AnnaLLP isn't precluded from using FRS until a VAT group actually exists though that AnnaLLP is eligible to join.
I do agree though that such a structure is overkill until the business has progressed a way, particularly since any goodwill will be personal to Anna and there won't be much else in the way of chargeable assets.
Sometimes people need to be told
Although a lot of people say you should let a new or potential client do most of the talking it can be very time consuming and painful for the client. I find that 90% of the time you know what they need to know and it's quicker to tell them what they need to know and then ask them if they have any questions. They usually say to me: "That's exactly what I wanted to know". But they were obviously having difficulty knowing how to say it.
One of my clients has a qualified accountant but he's been a management accountant in the past and I don't think financial accounting is for him. He sent me the company trial balance and it didn't seem to make sense. I asked for the fixed asset register and four of the ten categories were wrong. He had a year on each sheet of the register and when he started the next year he left off half of the assets! I sent him corrected categories which had been wrong and explained what journals were required. He phoned me and said he didn't think my draft accounts fixed assets figures were correct. I asked him what was wrong. His response was a series of groans and moans. He seemed to be unable to talk. I waited for some real words but he seemed incapable. I asked him if he wanted me to send him a complete set of figures that agreed back to the draft accounts. He said: "Yes, please". I sent the figures and he agreed they were correct.
I think the problem is down to educational establishments no longer encouraging any analytical ability. My O level exams were more difficult to present A levels.
Illuminating
That's really been very useful.
Illuminating, I'd say. How many accountants does it take to change a lightbulb?