Vat registration and accountants

[Big Jim]

Need some advice

I am currently a sole trader and have very simple accounts done on a spreadsheet by myself each year.
Our job tracking/invoicing system was coded in VBA in excel by me. It is basic but does what I need it to.

however for the first time this year we are about to hit the dreaded VAT threshold meaning I will have to register for VAT.
I definitely don't have the time free at the moment to spend modifying my current excel based tracking system to add VAT capabilities.

so I need 2 things,
1 - a decent accountant. any recommendations as to how to find a decent one ?
2 - your advice on what systems you all use to track VAT and jobs etc.

 

[Moltuae]

I could recommend a good accounting firm (one who do my accounts and are also a customer of mine) but you'll probably want to find someone more local to yourself.

As for the VAT, if you're only just going over the threshold, have you considered the Flat Rate Scheme? My accountant put me on the FRS a few years ago. I've always done my invoicing and bookkeeping using simple spreadsheets and, apart from adding VAT to my invoices, nothing changed when I joined the FRS. I simply charge VAT at the usual rate and, at the end of each quarter, I pay a portion of the VAT back. You pay back 10.5% of the invoice total for 'computer repair services', which means you get to keep about 1/3rd of the VAT you collect. The only downside is that you can't claim VAT back on purchases (except single purchases for your own business that are over £2,000), so the FRS is most beneficial if, like me, you encourage customers to purchase their own equipment (and instead charge for advice and your time sourcing the equipment). The VAT I retain each year is typically more than I would save if I were claiming VAT back on each purchase.

As an example:

If your invoices come to around 10K per month (+VAT), the total invoiced for the quarter will be:
3 x £10,000 + VAT = £36,000

If you're on the FRS @ the 10.5% rate, you pay back:
10.5% of £36,000 = £3,780

So the VAT you get to keep is:
£6,000 - £3,780 = £2,220 (or 37% of the VAT collected).

 

[Big Jim]

I could recommend a good accounting firm (one who do my accounts and are also a customer of mine) but you'll probably want to find someone more local to yourself.

As for the VAT, if you're only just going over the threshold, have you considered the Flat Rate Scheme? My accountant put me on the FLS a few years ago. I've always done my invoicing and bookkeeping using simple spreadsheets and, apart from adding VAT to my invoices, nothing changed when I joined the FLS. I simply charge VAT at the usual rate and, at the end of each quarter, I pay a portion of the VAT back. You pay back 10.5% of the invoice total for 'computer repair services', which means you get to keep about 1/3rd of the VAT you collect. The only downside is that you can't claim VAT back on purchases (except single purchases for your own business that are over £2,000), so the FLS is most beneficial if, like me, you encourage customers to purchase their own equipment (and instead charge for advice and your time sourcing the equipment). The VAT I retain each year is typically more than I would save if I were claiming VAT back on each purchase.

As an example:

If your invoices come to around 10K per month (+VAT), the total invoiced for the quarter will be:
3 x £10,000 + VAT = £36,000

If you're on the FLS @ the 10.5% rate, you pay back:
10.5% of £36,000 = £3,780

So the VAT you get to keep is:
£6,000 - £3,780 = £2,220 (or 37% of the VAT collected).

Very useful information thanks.

I will definitely need to take advice from an accountant.
We do phone repairs which are around 20% of our total turnover, In order for that to continue I need to stay competitive on price and as you can imagine adding (for example) £15 on to a £70 phone repair is going to hurt us.

I've just done a quick calculation and a £150 phone repair becomes either £165 or £168 depending on which VAT scheme you use.
And the same will apply to Laptop screen replacements as margins are similar

 

[alexsmith2709]

Very useful information thanks.

I will definitely need to take advice from an accountant.
We do phone repairs which are around 20% of our total turnover, In order for that to continue I need to stay competitive on price and as you can imagine adding (for example) £15 on to a £70 phone repair is going to hurt us.

I've just done a quick calculation and a £150 phone repair becomes either £165 or £168 depending on which VAT scheme you use.
And the same will apply to Laptop screen replacements as margins are similar

As @Moltuae mentioned, if you do move to the flat rate scheme, you will still charge the customer the 20% VAT, but instead of claiming back on purchases you just pay, in this example, 10.5% of your sales. For most companies this will work out less than the normal scheme. Your customers receipt still shows 20% VAT added and if they are a business on the normal scheme, they would be able to claim the 20% back.
Of course, you could adjust your pricing to reflect or just take advantage of a few pounds more profit.
I believe you can get a year discretion for going over the allowance to see if its a temporary rise in turnover or not, but i would check this with an accountant (when you get one)/HMRC.

I use a remote accountant based the other end of the country and i've had no issues in the 6 years i've done this. He is responsive to queries, sends out reminder emails when a deadline of some sort is coming up etc. I am happy to provide his details.

 

[Big Jim]

So went to see accountant today.
I feel slightly more easy about it all, still not looking forward to migrating to a new system however.
The accountant filled some gaps in, but mainly what you guys told me led me on a research trail where I had most of the figures etc, in my head already.

I am interested what you guys are using to invoice and track repairs with.
Apparently now all VAT has to be reported via MTD (Making tax Digitial) so I need tracking/invoice software that suits.
Currently the software I am using is a basic custom VBA based system I run from Excel

 

[Porthos]

Free Accounting Software | Manager.io

www.manager.io

Manager.io

www.manager.io

Something to look at.

 

[Moltuae]

I am interested what you guys are using to invoice and track repairs with.
Apparently now all VAT has to be reported via MTD (Making tax Digitial) so I need tracking/invoice software that suits.
Currently the software I am using is a basic custom VBA based system I run from Excel

Nothing changed for me when I went VAT registered (apart from adding VAT to my invoices of course and making VAT return payments every 3 months). I still use spreadsheets for both my invoices and my accounts bookkeeping (I'm business support only so I have no need for anything fancy like repair tracking). Dealing with VAT returns and MTD is my accountant's job. I just email him my spreadsheets every 3 months and he tells me how much I need to pay HMRC.

 

[glennd]

Free Accounting Software | Manager.io

www.manager.io

Manager.io

www.manager.io

Something to look at.

Are you using this? I started using it this financial year and I'm really liking it.

 

[Porthos]

Are you using this? I started using it this financial year and I'm really liking it.

I already have something in place.

 

[alexsmith2709]

I use Xero for accounting and then i have a point-of-sale system and my online shop linked in to that. My accountant logs in and does everything he needs to do after i let him know everything is up to date.

 

[Big Jim]

I could recommend a good accounting firm (one who do my accounts and are also a customer of mine) but you'll probably want to find someone more local to yourself.

As for the VAT, if you're only just going over the threshold, have you considered the Flat Rate Scheme? My accountant put me on the FRS a few years ago. I've always done my invoicing and bookkeeping using simple spreadsheets and, apart from adding VAT to my invoices, nothing changed when I joined the FRS. I simply charge VAT at the usual rate and, at the end of each quarter, I pay a portion of the VAT back. You pay back 10.5% of the invoice total for 'computer repair services', which means you get to keep about 1/3rd of the VAT you collect. The only downside is that you can't claim VAT back on purchases (except single purchases for your own business that are over £2,000), so the FRS is most beneficial if, like me, you encourage customers to purchase their own equipment (and instead charge for advice and your time sourcing the equipment). The VAT I retain each year is typically more than I would save if I were claiming VAT back on each purchase.

As an example:

If your invoices come to around 10K per month (+VAT), the total invoiced for the quarter will be:
3 x £10,000 + VAT = £36,000

If you're on the FRS @ the 10.5% rate, you pay back:
10.5% of £36,000 = £3,780

So the VAT you get to keep is:
£6,000 - £3,780 = £2,220 (or 37% of the VAT collected).

Still doing the maths here to see if it is worth doing flat rate or not.

I have a question, When you are on flat rate you cannot claim the vat back on purchases.
Do you know when you are claiming business expenses do you still have to factor VAT in ?
ie I buy an item for £10+VAT, do I claim the £10 as a business expense or the £12 ?

If only £10 is claimable, that means I still have to check every single receipt/invoice to see if I have paid VAT or not, so no time saving with regards to bookkeeping
if I can claim the full £12 as an expense then I am effectively claiming the VAT back anyway, just as an expense rather than a VAT claim.

 

[Moltuae]

It's the same as it is when you're not VAT registered, as far as I'm aware, ie the VAT paid is also part of the business expenses. Certainly nothing changed for me in that respect, and my accountant continues to work from a simple spreadsheet, which just lists my expenses and purchases. I don't even provide VAT receipts most of the time, just printouts of order confirmations, etc. The only exception is if you make a single purchase (for your own business) that exceeds £2,000 (ex VAT), for which you can claim the VAT back. To be clear, that's a single purchase order over 2K (ie it doesn't have to be a single item over £2K). So, for that reason, it's worthwhile bulk-buying stuff for the business, or holding back on purchasing some less expensive stuff until you need enough to place a larger order.

 

[Big Jim]

It's the same as it is when you're not VAT registered, as far as I'm aware, ie the VAT paid is also part of the business expenses. Certainly nothing changed for me in that respect, and my accountant continues to work from a simple spreadsheet, which just lists my expenses and purchases. I don't even provide VAT receipts most of the time, just printouts of order confirmations, etc. The only exception is if you make a single purchase (for your own business) that exceeds £2,000 (ex VAT), for which you can claim the VAT back. To be clear, that's a single purchase order over 2K (ie it doesn't have to be a single item over £2K). So, for that reason, it's worthwhile bulk-buying stuff for the business, or holding back on purchasing some less expensive stuff until you need enough to place a larger order.

This question may not apply to you if you do mostly business support.
Did you lower your hourly rate at all when you went VAT registered ?

We are probably 95% residential so I'm also working new pricing out in order to stay competitive.
25% of the business for example is phone repairs, and people generally are shopping around on price, I can't just wack 20% on top of what we are currently charging, people will just go elsewhere.

This will absolutely make us more expensive even if I drop our charges.

 

[NJW]

I can't just wack 20% on top of what we are currently charging

But the marginal change, for you, is 10.5% of your selling price as that's what you'll be losing from the sales figures in VAT payments (presuming that you can't bulk buy parts in £2k chunks).

You've either got to expand your turnover to make VAT registration worthwhile or reduce your turnover below the threshold. It was ever thus – plenty of my old self-employed acquaintances just stopped working when they reached the VAT threshold and had a couple of months off. There has to be a business plan involved – stay where you are and limit turnover or go large: half measures and you will lose out.

 

[Moltuae]

This question may not apply to you if you do mostly business support.
Did you lower your hourly rate at all when you went VAT registered ?

We are probably 95% residential so I'm also working new pricing out in order to stay competitive.
25% of the business for example is phone repairs, and people generally are shopping around on price, I can't just wack 20% on top of what we are currently charging, people will just go elsewhere.

This will absolutely make us more expensive even if I drop our charges.

I actually increased my hourly rate at about the same time. Not because of the VAT registration but because I was too cheap and have been gradually increasing my hourly rate for the last few years. But, yeah, I'm business-only support these days so the VAT is inconsequential to my customers.

But the marginal change, for you, is 10.5% of your selling price as that's what you'll be losing from the sales figures in VAT payments (presuming that you can't bulk buy parts in £2k chunks).

Unfortunately the >£2K purchases only qualify if they're for your own stuff. You can't claim the VAT back on any purchases that are for resale.

But, as you say, you can factor-in the fact that you get to keep some of the VAT (though personally I like to think of this as my payment for working as an otherwise-unpaid tax collector!).

Given that the VAT you charge is @ 20% and that you repay just 10.5%, at first glance it seems like you get to keep a little less than half of the VAT but it's more like 1/3 (or, to be more precise, about 37%), as per my earlier example:

If your invoices come to around 10K per month (+VAT), the total invoiced for the quarter will be:
3 x £10,000 + VAT = £36,000

If you're on the FRS @ the 10.5% rate, you pay back:
10.5% of £36,000 = £3,780

So the VAT you get to keep is:
£6,000 - £3,780 = £2,220 (or 37% of the VAT collected).

So a £1000 (pre-VAT) invoice would now be £1200 with the VAT. But, since you only have to repay £126 (of the £200) VAT, you could discount the invoice by £74 (£200-£126), bringing the invoice down to £926+VAT. There would of course be less VAT to charge (and keep) now.

 

[Moltuae]

I've just worked out the formula for this ...

So, to make the same amount (including the amount of VAT you get to keep), the price will be:
Original Price / 1.074 (+VAT)

For example:

Original (pre-VAT price) = £1,000
New price = £931.10 +VAT = £1,117.32
(which represents a total price increase of 11.732%)

The amount of VAT to repay will be 1117.32 x 0.105 = £117.32

VAT you get to keep = 1117.32 - 931.10 - 117.32 = £68.90

Therefore, your total income from the sale = £931.10 + £68.90 = £1,000

 

[Big Jim]

I am still getting this years accounts up to date at present, but so far it does look like I will be better off under the normal vat scheme, we buy quite a bit of stuff and I can't see this changing considering our jobs are relatively small residential jobs (and as I said above around 25% mobile phone repairs). up to now there are around 650 separate purchases through the business in my spreadsheet.
Also consider I can claim the VAT back on any purchases (that I can prove are still in my possession) made in the last 4 years. That will be worth a few hundred quid I imagine. Not really sure on this one yet as I will need to go through previous years accounts item by item to figure out which ones I paid VAT on.

 

[NJW]

Unfortunately the >£2K purchases only qualify if they're for your own stuff.

Ah, I misread that bit. The scheme didn't exist when I was toiling over VAT fractions!

 

[Moltuae]

I am still getting this years accounts up to date at present, but so far it does look like I will be better off under the normal vat scheme, we buy quite a bit of stuff and I can't see this changing considering our jobs are relatively small residential jobs (and as I said above around 25% mobile phone repairs). up to now there are around 650 separate purchases through the business in my spreadsheet.
Also consider I can claim the VAT back on any purchases (that I can prove are still in my possession) made in the last 4 years. That will be worth a few hundred quid I imagine. Not really sure on this one yet as I will need to go through previous years accounts item by item to figure out which ones I paid VAT on.

Yeah, the FRS isn't for everyone. It certainly sounds like the 'full' VAT system might be better for you. Unfortunately there's no way of escaping the perceived price-hike either way but at least if you're able to claim VAT back on parts, that might help you to remain competitive.

 

[alexsmith2709]

There are calculators around that can let you know if you will be better or worse off under the flat rate scheme. I cant remember which one i used, but i think most of them need figures from a previous VAT return which doesnt help in your situation, but you could always fudge the figures based on a previous quarter if you work out what VAT you would have paid/claimed back on sales and purchases to give you an idea.
I've been VAT registered since owning my business (I bought assets from a previous business i worked for and took over the premises so i already had a good customer base and was turning over above the threshold and had a number of business customers who prefer you to be registered for their own benefits).