Vat registration

Vat registration

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I hav just started up on my own as a self employed builder. I hope that in the first year my sales will exceed £60,000 but obviously can't be sure (month 1 sales £5,000. When should I register for VAT?
Jo

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By User deleted
10th Jan 2007 09:06

Log your calendar monthly turnover
Compulsory registration applies once a 12 rolling calendar months (or less) turnover amounts to the registration limit (currently £61,000). For much larger businesses there's an "expectation" test, ie. expect to exceed the registration limit in the next 30 days alone.

The time limit for registration notification to HMRC is within 30 days of the month end in which you have breached the registration limit using the rolling 12 months test.

What you now need to do is keep a calendar monthly record of turnover (full amount of sales before deducting any costs or expenses). The monthly figures need to be added up as a running total until the registration limit is breached.

If the registration limit were breached in say the month of August you must notify by 30 September and then be VAT registered from 1 October.

The above refers to compulsion to register.

Depending on the nature of the work carried out and the status of your customers it might just possibly be to your advantage to voluntarily register for VAT.

What some builders do, to avoid registration, is arrange for materials to be purchased by their customers - consequently their turnover is much reduced and can be well below the VAT registration threshold.

Another factor to be considered is that a £55,000 turnover builder might be better off than a £61,000 turnover builder because of the extra costs of being VAT registered in the latter case if the customers are not VAT registered (eg. householders) rather than trade customers to whom the VAT charge can be added as an amount they could recover.

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By User deleted
10th Jan 2007 09:13

Register at any time
You can register voluntarily at any time provided you can demonstrate to HMRC that you are making taxable supplies - your first months trading figures will be more than sufficient.

Comes down to whether there are benefits or not to registering now, rather than waiting for your turnover to exceed the £61k statutory limit.

Being registered does allow you to recover most of your business inputs (ie, cost of materials, a van, tools, etc) and will make you look more 'professional' to your clients. If your clients are mainly corporate then they'll be able to recover the VAT you charge so you have no issue with pricing yourself out of the market.

However, you will have to charge VAT onto your clients (depending upon what you are supplying) which may make you more expensive than your unregistered competitors, especially if your main clients are private individuals plus you'll have the extra admin burden of filing returns/doing the accounts.

I'd say leave it a while and maybe register nearer the end of your first year if things are working out alright or if you get close to the £61k threshold. You are allowed to recover input tax from expenditure incurred when you weren't registered provided you do everything right and keep proper records - but ultimately, will be down to you decide the cost vs benefits as noted above.

Mark's posting below with regard timing is spot on in terms of if you do intend to exceed the £61k limit within the year.It's important to notify HMRC as soon as you think/know you'll exceed the limit.

With regard the client buying the materials not the builder, this was (and still is) quite common, however, it tends to fall foul of the anti-avoidance legislation with HMRC taking an interest in builders who do all this work and yet buy no materials. If the builder can justify for each case why the client insisted on buying the materials then fine, but as a new start-up company, HMRC will be likely watching, especially in your trade anyway (no offence!) - but usually HMRC could see such an arrangement between builder and client as tax evasion as surely a builder could source materials cheaper than joe soap off the street?.

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By AnonymousUser
10th Jan 2007 13:34

Depends on your anticipated client base
As previously mentioned it is possible that it may be advantageous for you to register for VAT immediately. If your clients are VAT registered (probably with you working as a sub contractor) you will be able to reclaim any allowable VAT on any purchases that you make as part of your trading. It could also be advantageous to be VAT registered if you are working mainly on domestic new builds which are usually zero rated for VAT i.e. you can reclaim input VAT but charge output VAT at 0%.
If your clients are small domestic clients they will not be able to reclaim VAT that you charge them and thus your services will cost them more.

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By User deleted
10th Jan 2007 20:40

VAT for builders
This is partly a word of warning, but also a reqeust for comments.

Builders often quote and agree prices with clients with a system of staged invoices and payments which become payable as the job progresses.

I have a new client who has recently registered for VAT. At the time of VAT registration he was part way through a job for which he quoted without VAT. According to HMRC helpline he must account for VAT on any payments received after the date of registration. The client is a householder and the work is a domestic extension.
The builder with either have to take a hit on his profits, or charge extra to his client.
Can anyone comment on this situation?

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By User deleted
11th Jan 2007 08:19

Helpline are right
Once registered, you have to be law, charge VAT. Therefore, your client is obliged to charge VAT from that date onwards.

Remember, whilst he may now have to either charge client more VAT (not a good idea as it will look like he's trying to pull a quick one) or stomach the VAT 'charge' himself - he will also now be able to recover any input VAT he has incurred, not only from the point of registration but also upto 12 months previously.

He should re-issue past invoices for this job to include VAT and then pay over the VAT to HMRC himself. He can tell client that he'll pay the VAT - as long as he issues proper VAT invoices for the work. He can then recover any input VAT associated with that job from the start which should reduce his overall VAT liability.

For future invoices, he must charge VAT and again, if he cannot up the price to the client will need to off-set the VAT charged by recovering input tax. If he is a new business, he'll no doubt have bought tools and a van, etc and so all things considered should not be out of pocket.

Alternative is to just take the hit and put a few % more profit on the next job. I guess it depends upon the value of the works and how much input tax will off-set against the output tax.

Personally, I'd have either delayed the registration or issued pro-forma invoices, thus moving the tax point to before being registered.

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