ChatterBank0 min ago
Crippled By Vat
13 Answers
My partner, aged 60, an electrician runs a small Electrical Contractors. He employs 2 full time Electricians, one is his son, and one Mac has been with employed by him for 20 years. There is a part time office girl who works 3 days a week. I take a nominal wage for doing the cash book. The point is our VAT bill for this last 3 months is just over £7,000. We have taken £47,000 in money in, but our outgoings are £37,000. So this leaves approx £10,000 in the bank. But we have suppliers bills of £5000 to pay and wages bill of just over £2000 as well as the VAT, plus tax and NI of about £1300
I am have claimed back everything possible that we've paid VAT on. My partner is already owed £3,000 of his savings which he has put into the business. If he has to put more savings in, he will be so depressed. He doesn't want to run a business that is making him no money for the next 5 years. He takes a wage of just £1000 a month while the other electricians get the standard £12 and £11 an hour for a 40 hour week.
We have talked about making his son and Mac self employed, but this would mean paying redundancy and Mac's would be over £8000 which we haven't got
Is it possible to start up another company in his son's name which would be under the VAT threshold to reduce our VAT?
I am have claimed back everything possible that we've paid VAT on. My partner is already owed £3,000 of his savings which he has put into the business. If he has to put more savings in, he will be so depressed. He doesn't want to run a business that is making him no money for the next 5 years. He takes a wage of just £1000 a month while the other electricians get the standard £12 and £11 an hour for a 40 hour week.
We have talked about making his son and Mac self employed, but this would mean paying redundancy and Mac's would be over £8000 which we haven't got
Is it possible to start up another company in his son's name which would be under the VAT threshold to reduce our VAT?
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Ok these are figures for an average month. The things that remain the same figure every month have D/D after them
Money in £15,500
Money Out
Suppliers £3000
Wages 2 Electricians £3590
1 office girl £749
My partner (Director) £1000
Me £200
Fuel for 3 Vans £562
Nat Ins and P.A.Y.E £1039
Rent for Office/unit £170 (DD)
Phones £60 (DD)
Internet £25 (DD)
Accountancy £65 (DD)
Directors Pension £260 (DD)
Repairs to Vans £93
The company is limited. Money in each month Varys from highest £18,000 and lowest £6000 depending on whether jobs are ongoing.
Money in £15,500
Money Out
Suppliers £3000
Wages 2 Electricians £3590
1 office girl £749
My partner (Director) £1000
Me £200
Fuel for 3 Vans £562
Nat Ins and P.A.Y.E £1039
Rent for Office/unit £170 (DD)
Phones £60 (DD)
Internet £25 (DD)
Accountancy £65 (DD)
Directors Pension £260 (DD)
Repairs to Vans £93
The company is limited. Money in each month Varys from highest £18,000 and lowest £6000 depending on whether jobs are ongoing.
A couple of things, Phooey. I guess you are actually charging the VAT on your issued invoices? Surely, the tax comes in, then you pass it on to the HMRC monthly. Apart from simplifying your cashflow, being unregistered would have no net effect on that.
Self-employment ........... HMRC is likely to take the view that your staff's work is solely from one source (The Company Ltd). They would probably class this as "employment" and refuse self-employment status.
Separate companies........... I've done this myself (on Accountant's advice). I'm in a registered Partnership (only me and 'im) which is unregistered. I, on my own am also VAT registered as a necessity for working for businesses (pubs, farms etc)
Self-employment ........... HMRC is likely to take the view that your staff's work is solely from one source (The Company Ltd). They would probably class this as "employment" and refuse self-employment status.
Separate companies........... I've done this myself (on Accountant's advice). I'm in a registered Partnership (only me and 'im) which is unregistered. I, on my own am also VAT registered as a necessity for working for businesses (pubs, farms etc)
Sorry forgot to say Money In is before the VAT has been paid to HMRC.
We do charge VAT on our invoices, but since the VAT rate increase an awful lot of people will argue til the cows come home that they don't want to pay VAT. My partner is not very good at insisting and a small percentage just will not pay it, so we end up having to get the majority of the money owed, less the last 20%. The bigger the job, the more people don't want to pay VAT and its becoming a real problem.
We do charge VAT on our invoices, but since the VAT rate increase an awful lot of people will argue til the cows come home that they don't want to pay VAT. My partner is not very good at insisting and a small percentage just will not pay it, so we end up having to get the majority of the money owed, less the last 20%. The bigger the job, the more people don't want to pay VAT and its becoming a real problem.
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In your typical month ...
Your Money in is about £13000+VAT - the VAT is about £2500
Your money out is £10813
Therefore you have a viable business if your clients pay their VAT like they're supposed to.
Your problem, as others have pointed out, is that you are letting people underpay you. If nobody pays their VAT, your money in becomes not £13000 PLUS VAT but £13000 MINUS VAT, as you have to pay their VAT. Then your money in is only £10500 and you're going under.
Two solutions to your problem, as long as you want to stay in business.
One is proper credit control. If you can't do this yourself, consider outsourcing it.
The other solution is to charge people less. If you charged people £11000+VAT AND THEY PAID THE VAT, their total bill would be about £13000. If you charged them £13000+VAT and they DIDN'T pay the VAT, they would STILL be paying you about £13000. The difference between the two situations is that in the first one, you can afford to pay your VAT bill - in the second one, you can't.
That said, I would strongly advise better credit control as the solution to your problems. We do our own credit control but, if you're looking for a third party provider, I have heard good things about http://
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About the separate businesses, Phooey.......... I'm sorry my post was a bit strangled. What I was trying to say was, there's no problem with multiple businesses except for added accountancy fees.
Accountants like them because it gives them more scope for spreading your personal tax liability amongst the different businesses.
Whether or not they are VAT registered depends only on whether you work for other businesses ......... and, of course, your turnover.
I certainly think you should look at de-registering in your circumstances.
Accountants like them because it gives them more scope for spreading your personal tax liability amongst the different businesses.
Whether or not they are VAT registered depends only on whether you work for other businesses ......... and, of course, your turnover.
I certainly think you should look at de-registering in your circumstances.
Dear oh dear, this is a mess. Firstly, you're not being crippled by VAT so lets stop blaming that. You're being crippled by running a business that either isn't profitable or is profitable but is experiencing cash flow problems due to uneven accumulation of profits (it isn't clear which from the figures supplied).
You are VAT registered so you are obliged to charge VAT on work done. If you are not then collecting that and instead effectively giving a 20% discount then you are getting hamstrung from the start. That's your profits you are not collecting, not that VAT which still has to be paid (albeit at a lower amount if you are accounting for it properly, which I suspect you are not).
You can start up another company if you like but it would need to be owned independently and not a subsidiary company. That way you could probably get both companies out of VAT as the threshhold is now £79,000 per annum. Your accounting would be more complicated through two companies but it would save you charging VAT. It would of course also prevent you claiming VAT on your motor expenses, suppliers invoices, etc. Please don't overlook that. The saving is on the marginal effect of VAT, not the VAT you have to charge. If your customers were all VAT registered businesses then dropping out of VAT would be counter-productive. I presume however they are mostly private householders otherwise they'd have no incentive to get uppity about paying VAT.
To be honest though, if you are unable to collect the bills in full now then I have my doubts about how easily you'd do so if you weren't charging VAT. The sort of customers who find an excuse not to pay the VAT will also find one not to pay the last 10 - 20% of a lower amount too.
You are VAT registered so you are obliged to charge VAT on work done. If you are not then collecting that and instead effectively giving a 20% discount then you are getting hamstrung from the start. That's your profits you are not collecting, not that VAT which still has to be paid (albeit at a lower amount if you are accounting for it properly, which I suspect you are not).
You can start up another company if you like but it would need to be owned independently and not a subsidiary company. That way you could probably get both companies out of VAT as the threshhold is now £79,000 per annum. Your accounting would be more complicated through two companies but it would save you charging VAT. It would of course also prevent you claiming VAT on your motor expenses, suppliers invoices, etc. Please don't overlook that. The saving is on the marginal effect of VAT, not the VAT you have to charge. If your customers were all VAT registered businesses then dropping out of VAT would be counter-productive. I presume however they are mostly private householders otherwise they'd have no incentive to get uppity about paying VAT.
To be honest though, if you are unable to collect the bills in full now then I have my doubts about how easily you'd do so if you weren't charging VAT. The sort of customers who find an excuse not to pay the VAT will also find one not to pay the last 10 - 20% of a lower amount too.
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