My son started a new business which it is likely to exceed the 12 month rolling VAT threshold after about 9 to 10 months, but he mistakenly registered immediately as he thought that was a requirement because he anticpated the threshold within twelve months!
Anyway HMRC required his first return to be made at the end of the month of registration, at which point he hadnt even opened for business, so that return was basically a re-claim of VAT on all the set-up costs and stock purchase.
From the first of the following month (ie the new VAT quarter) he has been faithfully charging VAT and issuing VAT receipts where requested (practically never as it is a retail business selling to general public).
Can he now pay over the VAT so-charged, de-register and then re-register in 9-10 months once the12 month rolling turnover approaches the limit or is it the case that having taken the Queen's shilling, by way of re-claim, he is now stuck with it?
Many thanks in anticpation
(had he asked me at the start, he wouldnt be in this mess, but hey - that's children for you!)
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Replies (18)
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If he is going to need to be VAT registered in the not too distant future I would just leave things as they are.
Well you're talking about the VAT due on ~£83000 turnover -£14k ish - against the £2.5k reclaimed on first return
That's best part of £11k down the tubes unless he actually ups his prices by 20%
Quite a big write off!
If only he'd sought the advice of an accountant. Or even his dad.
Probable cost in fees - couple of hundred.
It's tough to have a lot of sympathy with someone who thinks it's all so easy.
Still - a lot depends on when he'd be likely to have to register again.
"It's tough to have a lot of sympathy with someone who thinks it's all so easy."
[over-protective father warning!]
and that's the nub of your misunderstanding and probably goes some way to explaining why he didn't involve an accountant at the start.
I dont think he EVER thought it was easy but sometimes in life an opportunity presents itself and in order to take advantage of that opportunity you need to grab it by the balls and run with it.
Inevitably that means some compromises and certain jobs - if they are going to get done at all - need to be done yourself. No dis-respect but I am 60 and have used several accountants during my varied careers and the one constant thing you can say about accountants is that they are never early with anything. "Shoot the crocodile nearest the canoe" seems to be the motto - i.e. the next deadline looming is the job that gets the attention!
So in my son's case the right premises came up at the right rental in the right location but he needed to move fast to take possession, refit it and open in time to get the 2 months trading before Xmas that historically represents over 30% of the annual turnover.
It was three weeks from viewing to taking possession and four weeks for a complete refit, during which time he potentially needed the services of professional plumbers, electricians, accountants, bankers and solicitors. The business that is opposite him took possession the same day as he did and they still haven't even finished shopfitting!
Of course, there's a risk in DIY'ing this stuff but its a risk you take if you want things to move quickly. Sometimes you get it wrong and have to pay a price later but that isn't necessarily a bad thing if what you did gave you a big head start.
I think most of the general public would say that risk-taking and accountancy aren't words that generally sit comfortably together.
In an ideal world we could all simply pick up the phone and (pay for) a plumber, a carpenter, a lawyer or an accountant and get a good job done in short order. In the real world we hang about waiting for people who never return calls, promise to get back to you and don't, agree a deadline which they then miss or - god forbid - give bad or misleading advice!
So whilst I have no doubt that you mean no ill will to my son specifically, and in the future he will almost certainly need and engage an accountant, it is far too simplistic to brand those that DIY (in any field) as obviously stupid or just cheapskates.
When he told me he had registered I did raise a query with him and suggested he speak to HMRC and/or an accountant but he simply did not have time. They were working 20 hour days for the last few days in order to open on time. I know because I was helping with the plumbing (despite not being a professional plumber) because... the "professional' had let them down.
Nevertheless thanks for your time and input on my question.
No problem. The lad's clearly happy with the risk he took and it's not open to him to complain if it's cost him money.
That was the risk.
The set up and stock costs can be reclaimed for up to 6 months prior to registration so if he registered after 6 months then HMRC would still be making that refund for exactly the same amount
Therefore the only loss is the VAT charged on sales to date which would be accounted for presumably in a final return on date of deregistration
The business is hairdressing. Almost inconceivable that anyone will be reclaiming VAT on that anyway!
Trouble with "talking to HMRC" is getting to talk with HMRC - an impossibility these days!
Not so much consumables as products for resale. (Shampoos etc!) Hence stock. HMRC website makes clear that this is allowable up to 2 years (possibly 4, but 2 is more than enough) prior to registration. Obviously only on the stock actually held at the time it items that have already been sold!!
These examples of VAT registration errors shows some of the value accountants have. Despite this, people still think that they can deal with "simple" matters and make a total mess of it.
And a happy Christmas to you too
I didn't ask you to sort it for free, I asked (essentially) if there was any hope of getting HMRC to cancel registration and any point in even applying. Had I had no response I would have done so anyway
If you don't want people coming on here asking questions for free then make it a closed group requiring some sort of qualification to join
I found this group by googling the question I needed to ask
Perhaps if you weren't minded quite the way you are you'd find more clients willing to pay for your services?
And a happy Christmas to you too
I didn't ask you to sort it for free, I asked (essentially) if there was any hope of getting HMRC to cancel registration and any point in even applying. Had I had no response I would have done so anyway
If you don't want people coming on here asking questions for free then make it a closed group requiring some sort of qualification to join
I found this group by googling the question I needed to ask
Perhaps if you weren't minded quite the way you are you'd find more clients willing to pay for your services?
I find it best (regardless of the validity of the person making the comment) to ignore the 'you come on here, expecting free advice' comments. Most people on here just like to have a moan, they are all lovely people really. Oh, except for [moderated] and [moderated], and ESPECIALLY [moderated]!
It's not coming on here asking questions that is the issue. It's the people who think they can do it themselves despite obviously not being able to. I would think that most accountants on here are busy enough without wanting cheapskates as clients. If people prefer to try to do something themselves and make a mess of it then they only have themselves to blame.
see my reply to similar comment above, at 1st Dec 2016 16:17
Thanks for your input though; all comments welcome no matter what!
If your son can increase his prices to cover any additional vat without losing customers, then I would continue as is. Remember, you pay the difference in vat to hmrc, given this scenario your son would gain a small amount of income as a result.
The only negative impact on registering early is if the above was not true and he had to take a hit to his profit margins to cover the cost of vat payable
Yes its price sensitive market so he has to absorb the VAT to keep the end user price the same - at least until the business is established.
I have just spoken to VAT de-registration unit about this on the phone. (Surprisingly easy to get through, as it happened!)
Basically she said no hope of them being subjectively merciful about this and only good hard (pre-defined acceptable) reasons for de-registration will be accepted!
However the first two months of trading seems to indicate that the next twelve months will be below the de-registration threshold of £81,000 - their initial projections were optimistic it seems (what a surprise!)
So we will give it a go on that basis and cross fingers.
This recent FTT decision is relevant:
http://financeandtax.decisions.tribunals.gov.uk//judgmentfiles/j9506/TC0...
By the way the appellant voluntarily registered on the advice of his then accountants (TaxAssist in Harrogate) and thus might be able to sue that firm.
Thank you so much for a comprehensive reply on this. My son has now submitted the VAT7 applying for de-registration (if allowed, effective from date of receipt by HMRC) based on reduced turnover forecast as a result of two month's trading showing the initial forecast to be overoptimistic, and as you say the VAT due on sales n the first two months may just about balance the re-claim from the initial return.
Their total expenditure on setting up the salon, including rent payment, deposits, re-sale stock, fitting out etc was around £18,000. However a fair proportion of the work that as done was done by non-VAT registered tradesmen and thus no VAT could be reclaimed. That is why the initial reclaim figure is less than a simple $18k/6 =£3000!