Becoming VAT Registered

The potential lost clients if my business becomes VAT registered

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Hi All,

I have been operating for around ten years and my turnover is approaching the VAT threshold. I am a sole owner/director, and being about 5/6 years from retirement, I'm not sure if I want to increase my workload much more.

That said, I have not put up my costs for some years (well maybe six or seven), and therefore, if I do so, I am likley to break the VAT threshold. I have many VAT registered clients, but also a substantial number not registered - you know the ones, self-employed carpenter, hairdresser and such like.

I guess there are lots out there who have had to register their businesses and it is them that I guess I am directing my questions:

  • Did you lose many of your non-VAT registered clients?
  • Did you do anything to reduce the potential loss of such clients?

Any bits of advice would be greatly appreciated, so that I can make my decision a little better informed.

Thanks all.

Replies (13)

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By ireallyshouldknowthisbut
01st Nov 2023 17:25

Noone batted an eyelid when I did it many years ago, but if you have not put up your prices for that long you really ought to as you are probably 30% too cheap. Having said that adding VAT will add 50% so is a lot to swallow. I supposed it depends how cheap you are now.

I would put them to market rates, and if you get any fall out, you should make it back on the ones with an uplift.

Generally clients know if they have got a bargain. My handyman put up his rates from a ridiculously cheap £15/hour [and I said to him at the time £20 minimum an charge for everything including getting materials, and mark them up too] to £35/hour over the course of 4 years. I still use him, albeit not as much.

Thanks (1)
By Open all hours
01st Nov 2023 18:28

No and no.
Am seriously worried that your rates have not been reviewed for so long but it’s your ship to sail.
On registration we told clients they should be pleased to be with a successful growing business. None saw it as a problem. Threshold frozen for now so crack on and aim for a six figure turnover to make it worthwhile.
Shame the rules discourage enterprise, but that’s because we elect the ignorant and incompetent. Then we featherbed them to ensure they remain out of touch throughout their period in office.

Thanks (1)
By bettybobbymeggie
01st Nov 2023 18:44

This thread from a while back has a few tips:

Offering to get their current year tax return done before registration is a nice idea. I also did interim invoices for regular work (eg. payroll) that I normally only invoiced annually to save them a few quid.

Thanks (1)
By AA90
01st Nov 2023 21:39

Not helpful really but an alternative view.

I’m also a sole practitioner, just starting out (relatively speaking) and I can’t wait for the day I turnover enough to become VAT reg! Just saying don’t look at it as a bad thing so much :)

Thanks (0)
Replying to AA90:
By CardiffAccountant
02nd Nov 2023 07:17

Hi AA90,

You’re right, 90% of my turnover is on a monthly basis, and I can remember how chuffed I felt when it broke £2,000!

I think if I had realised at the time, I would have been VAT registered from the start. Then I would not have this dilemma

All the best with your business and hope you reach the threshold sooner than you expect.

Thanks (2)
Replying to AA90:
By SteveOH
02nd Nov 2023 09:07

Don't forget that you can voluntarily register for VAT immediately.

Thanks (0)
By jonharris999
02nd Nov 2023 06:19

I have noticed, not just ref my own practice in the past but also when the same question comes up for all said hairdressers and carpenters ref their own businesses, that the extent to which the proprietor worries about this before it happens bears no relation whatsoever to what actually happens. The first is often "a lot" and the second is, more or less exclusively in my experience, "nothing at all".

Thanks (1)
Replying to jonharris999:
By CardiffAccountant
02nd Nov 2023 07:21

Hi jonharris999,

Thank you for responding.

When you say, ‘ The first is often "a lot", do you mean you lost a lot of hairdressers and carpenters?

Sorry if I seem a thick!

Thanks (0)
Replying to CardiffAccountant:
By jonharris999
02nd Nov 2023 07:37

No, sorry, my bad. I shouldn't try complex turns of phrase before breakfast. It's a bad habit.

No, I meant that "a lot" of proprietors worry about this a good deal, whether they are accountants, hairdressers or widget hawkers. And I don't think they should. VAT reg never heralds the doom they think it will.

Thanks (1)
By exceljockey
02nd Nov 2023 16:31

Whilst I have not been through this in my business, a number of my clients have been and it has never been as big an issue as they thought it would be. Most people wouldn't go through the hassle of finding a new accountant, hairdresser, gym etc for a 20% increase unless they had no choice due to budgetary constraints.

Thanks (1)
By FrankTax
02nd Nov 2023 20:30

"I have not put up my costs for some years (well maybe six or seven)"

I'm just quite shocked about this, why would you not increase a little each year with inflation?

Thanks (1)
By Calculatorboy
04th Nov 2023 21:26

Only you can do the numbers ,if close to retirement maybe do what you can to avoid registration legally , ie dump those irritating clients you've put with for so long ...honestly you won't miss them

Thanks (1)
Jennifer Adams
By Jennifer Adams
07th Nov 2023 09:28

You need to use this situation as a trigger for reflection and forward planning. Work backwards and calculate how much you might want/need to work when you retire - how much income. If you have a good enough pension then take the opportunity to gradually reduce /get rid of clients and keep those you love (assuming you want to work part time when you retire) so that keeps you under the limit. Possibly start by not taking on any more clients.

Or are you intending to sell your businesses? - possibly more attractive to buyers if you are VAT registered.

As other comments have said - it's not Accweb members place to advise on fees but again this is something you need to look at (e.g. increase fees but get rid of those troublesome ones - you dont want those type of clients in your latter years).

ireallyshouldknowthis is right about fee increase. It has been difficult to do so during pandemic but now that is in the past all practices should be reviewing their fees. Possibly those who dont like it will leave but as you will read whenever the subject of getting rid of clients comes up on Accweb - you will find others to replace.

This all assumes that you dont need a set amount of income now and over the next few years- if so then suggest increase fees and if there is any fall out then so be it.

Thanks (1)