Going VAT registered

[edstrom76]

The wife has a SME (beauty salon) and we've been on about whether or not to go VAT registered. At the moment her turnover is not exceeding £10k/annum so she's not paying any tax, but that's likely to increase as she gets more and more clients. She's doing really well. I am aware of the £81k/year threshold but would there be any point in voluntarily VAT registration? How would it work in practice, would she be able to claim all her VAT back on purchases such as nail varnish, fake eyelashes and tools etc.? And would she potentially be presented with a quarterly/annual bill?

Keen to get your view on the subject!

 

[Meldrew2]

Unless a SME is selling BTB (business to business) there is nothing to be gained in vat registration, but plenty to be lost. This is because you cannot reclaim vat on every input, but must charge vat on every sale, and your customers won't pay anyore to cover it. Delay the registration as long as possible, then look at the flat rate schemes.

 

[davidjpowell]

Flat rate is good, but the common gotcha is that you calculate on gross sales including vat.

So for instance on £10,000 + VAT worth of sales you pay 10% of £12,000

 

[def90cars]

Flat rates aren't all 10%. Mine is 15% but it saves me about £1000 per quarter.

 

[Harrythedog]

Stay out of it as long as you can. You'll be charging 20% more than your non vat registered competitors
RE the Flat Rate scheme % you pay is sector dependant, there's a list on HMRC website which will tell you

 

[flango]

My advice delay as long as you have to to keep your competitive edge, then if you pass the Threshold get a very good accountant and play the system for all its worth you will be amazed at the benefits it brings once you are through the threshold. As I've said though a good accountant is they key and avoid flat rate schemes if you want to exploit the benefits as they lock you out of certain things. I had a really good relationship with our accountant and VAT inspector and she knew we were playing the game but playing within the rules so everyone was happy.

 

[Meldrew2]

Flat rates aren't all 10%. Mine is 15% but it saves me about £1000 per quarter.

Mine was 8% but as recession hit was able to deregister. Flat rate might save money, it definitely saves paperwork and accountant's fees.

Can do flat rate with an annual return, monthly payments, dead simple, but it's another overhead that is best avoided if possible.

 

[markjay]

If you opt for full registration (I.e. not flat rate), you will be charging 20% VAT on sales and claiming back same from purchases.

But...

A. Unless the business is running a loss, your expenses will be less that your sales.

B. Not all of your costs incur VAT anyway, e.g. salaries, business rates, or purchases from other non-VAT Registered small businesses.

So on balance there is little to be gained from voluntary VAT registration if you are in the consumer market.

 

[edstrom76]

Ok sounds pretty conclusive then! It's nice when things are close to black or white, makes decision making so much easier

 

[janner]

If your customers can claim the VAT back then it can make sense to register. I would guess that in a beauty salon your customers can't so it makes no sense at all.

 

[Deleted member 65149]

If your wife's working on her own she'll be doing exceedingly well to get over the VAT threshold. My wife also has her own beauty business (hair and nails) working from her privately owned salon (so no rent). She's registered for business rates (not voluntarily - the local council "found her"!), but fortunately with small business relief this costs nothing at the moment. Her business is also doing very well but she's a long way off having to worry about VAT so she's not registered. She was registered when she had a large hair salon with a turnover around £250k, but as her unpaid bookkeeper I can tell you that it involved a lot of paperwork. So, as others have said, keep well clear as long as possible.

 

[edstrom76]

Sounds very similar to my wife - somebody in the village had notified the council to the fact that she was doing treatments from home. They promptly paid us a visit. The man could scarcely believe it when he saw her setup (she was only doing friends and family at the time) and that was the end of the matter - no further actions were required.

 

[Benzowner]

What you or your wife needs to look at is what savings can be made by going VAT registered, i.e VAT on fuel used for getting to and from customers houses, if she considered that, VAT on her purchases of consumables and then offset that against what she would then have to charge her clients. In simplistic terms, the savings on a bottle of nail varnish, probably pennies, against the VAT charge when applying that item to the clients nails, probably pounds, not worth it, stay unregistered as long as possible.