VAT!

[less]

Hi,

I wonder if members of the forum would be willing to share their thoughts on VAT!

Starting out it is not necessary to register, especially as the limit is now quite high, but do framers register voluntarily to recoup VAT on capital items? I realise that must impact on retail sales so I would be very interested to hear about other peoples opinions / practices.

Thanks.

Les Sutherland aka less

[Merlin]

Hi Less
Not too sure if this is the type of reply that you wanted.
We have been running a High St Bespoke/small Gallery retail shop for the past 6 years now. We are not VAT registered. With the Accountants help we have managed to just stay below the threshold, on average by about £2k each time.

According to the Accountant, our sales would need to be about £6K - £9K over the threshold to make it worth while, there would also need to be a slight increase in prices as well.

In our situation, where we have a very good year or two then a bad year or two, we would be into a 'sea saw' situation, where we would register then deregister etc. So according to the man who I pay a lot of money to, his advice is stay VAT free.

[less]

Hi John,

thanks for that. I'm just trying to clarify the situation for myself really, having to fork out a large sum on capital items it is rather galling to see how much of that is VAT. I don't really want to get into the position of charging people 17.5% more than I have to so I just wanted to know what other framers do. As you say, it probably needs a hefty margin over the limit in sales to balance things up, can't see myself doing that amount of trade in the foreseeable!

Will just have to bite the bullet on capital items I guess.

Les Sutherland aka less

[markw]

VAT threshold £58000. You have to look at your business plan and try and predict where you are going - To make a good living it has to be over the threshold. - its worth remembering that you shouldnt go over the limit without registering - i think the rules are that you must register if you have a few consistently good months turnover (£ 1116+ a week?) that would take you into the threshold were you to maintain the same monthly figure - might be worth asking the VAT man for advice - they can be quite friendly.
There is a flat rate scheme but nobody seems to have negotiated a rate for picture framers - last time I asked the FATG i didnt get a reply.

Not sure that I would want to limit the amount of turnover to keep within the threshold - rather go for more turnover and cope with the VAT

[More So]

having to fork out a large sum on capital items it is rather galling to see how much of that is VAT

Don't forget that there are two sides to this equation.

When you're registered, sure you can recover all the VAT that you have spent, however 17.5% of your turnover goes to the vatman.

On the other hand, if you remain unregistered, while being unable to recover your outlay on materials, remember that nothing is being gouged from every sale you make.

My advice is don't rush to register before it becomes absolutely necessary.

[Merlin]

As Mark says, the VAT people are really quite friendly and helpful. They sent me videos, CD's and load of paperwork to wade through.

They even took time out to send somebody round - at my request - to talk me through it all. Even then his assessment was - After looking at my business plan. trying and forecast ahead, using our historics of previous years. Stay as we are - unregistered

We certainly ran through my situation and he was quite happy and in agreement with the Accountant, that by staying £2000 under the threshold, they would be quite happy.

[Joe]

Less

If you eventually have to become vat registered you can reclaim all the vat paid on machinery and equipment as long as it is still in your possession - at least that was the case a few years ago when we registered.
Anyway vat is not rocket science don't be worried about becoming registered - all you need is a good spreadsheet.

Joe

[Frameus]

Having read the replies to your query, I have seen some well meant advice with slight holes in it. If you are not VAT registered, you cannot reclaim the amount of VAT which you have spent on materials, but being VAT registered does not mean that you hav to raise your prices by 17.5%. You should already be charging your customers a price which reflects the total cost of your materials. Registering for VAT means that you can claim that element of the VAT total from your VAT return. You would have to work out the percentage, but in my other business with somewhat larger projects, I determined that an increase of 10% would cover the discrepency. Not a single custokmer who had been quoted at a price nett of VAT, complained.

Withe regard to thge reclaiming of VAT paid in the past, I think that you will find that you can reclaim all VAT spent on services in the 6 months prior to registering and all VAT on tools, equipment and plant purchased in the tree years prior to registering. Check it out.

[less]

Thankyou Frameus for your helpful and thoughtful response. I think I am leaning toward registering, it would certainly help my cashflow!

Les

[kev@frames]

hope its not to late to add my two-penn'rth-

all the above advice is sensible and It all depends where you are aiming to be (turnover-wise) in the future.

imho (and i stress the imho bit) I would not bite the VAT bulllet until you have to. But here's my story of strife and woe vat and accountants....

We've a high street shop (literally, 1 high street is our address) and have been in the game for about fifteen years. Thirteen years dealing with VAT.
we've moved shops three times in that period.

Aside from the advantages/disadvantages of registering when you are below the threshold, which is where an accountant may help, here's some of the concomitant effects of VAT registration as I've found them:

more time doing paperwork/or paying accountants fees from now till the end of your days. You can do the VAT yourself, it isn't rocket science, but you have to do it right and on time. Sounds easy, but a simple mistake will cost you dearly.
I dont do my own VAT. Im no expert, and I reckon that my present accountants pay their own fees in the money they can save me. And the paperwork is watertight, I can sleep at night.

I've had three accountants in 15 years. I fired the first because he poached a member of my staff (incredible isn't it) and I fired the second because he failed to file two VAT returns and then lost the books which eventually cost me arounfd £5,000 in VAT, Fees, VAT fines and another accountant to sort out.
So having a chartered accountant isn't necessarily a guarantee that VAT will all be plain sailing

the plus side of having an accountant and VAT- they know who to deal with at HMR&C, how to deal with them, and what information is required (and just as important what information is NOT required). And when it comes to VAT registration time, it wont come as a surprise to you.

I reckon on paying 1500 to 2000 a year for the accountancy. this deals with all the VAT, tax, Payroll, PAYE, NI etc, and leaves me free to make frames and cut mounts.
It sounds like a lot of money for the sake of not doing your paperwork, but in the great scheme of things the accountants can do in an hour what would take me a whole day, and you can make a lot of frames in a day - I know what I'd rather be doing

Turnover is vanity - profit is sanity. Never a truer word spoken.

Dont be in a hurry to break through the VAT threshold, but dont hover just above it. You'll need to jump from 60k to 100k to keep standing still.

We used to have 7 people working 7 days a week in our old workshops and shop, (this was 4 years ago). The madness was we had an impressive turnover, but huge wages bills, massive wastage, and to be frank, dubious quality sometimes because half of our business was scratching around at the bottom end of the market doing trade bulk orders in plastic mouldings and the cheapest mountboards (other cornish framers here will know what I mean when I say "for tourist galleries" and "St Ives")
Thank goodness the days of laser copies with "artists" signing the mounts are coming to a close....
The only advantage to it was that we were getting 20 or 30% off the factory price for mouldings, and had reps queuing up at the door offering us special terms -no names, no pack drill, but the five "big" suppliers of mouldings reps were all there withing days of us "falling out" with a well known firm who bill you for stuff you didnt have, and send you stuff you didn't order, and then slapped high court writs on you when you disputed the bill. We used to spend 20k a year with that one supplier alone, now we get the same products in half the quantities from the people who make it for them -and a better service.

Now we turnover a half of what we used to. And we still keep the discounts

Now much of our work is quality, higher profit, and the workshops have three of us, one part time. And we make more money. I enjoy my work again, its not a "factory" any more, its a framers, which is why i got into this game in the first place. I never became self employed to flog my tripe out to pay massive amounts of wages and VAT and get nothing out of it for my self or family. But thats what the first 10 years was.

When we get too busy now, we dont take on more staff, we just put the prices up, and slow the work down that way. We always keep a bargain range (price wise) of mouldings and boards, so we always have a budget price alternative if the original quote makes the customer cry.

If I was to start again, and be in it just for the money, I would ignore the lower and middle end of the market, and could quite happily make a reasonable living under the VAT threshold but it would mean losing a lot of customers who ive got quite fond of. The little old ladies with their trapezoid tapestries, the hobby artists, and the "fun" customers who have birthday cards framed just for the heck of it.
As it is now, we can afford to pick and choose, because there is enough work for everybody in the area.

The customer you dont want, ever, is the "how much will you do it for cash -I dont want to pay VAT" merchants. for why? Because they are as well known to HMR&C as they are locally, and if they get investigated then you get investigated. You are tarred with the same brush. And unless you have insurance for a tax barrister, investigations are expensive and time consuming (we have insurance). This insurance wont "get you off" if you have been naughty. But it will make sure the penalties accurately reflect your misdemeanours. Unfortunately even when you play by the book, to the letter and in spirit, you might still get an investigation, so the VAT and the Tax papers have to be up to date and good records kept.

word on the street is that actually having the insurance in the first place may well keep HMR&C off your back in the first place, as they'll go for the softer targets, taking the route of least resistance. Thats obviously a rumour, and not a policy plucked from tony blair's magic hat.

so, in a nutshell my line of thought on VAT is - dont register till you have to, let someone else do the paperwork if you find it problematic, adjust any prices as necessary (be brave) and carry on doing what you do best -making frames, marketing your business, and enjoying your work. And remember turnover is vanity....profit is sanity. And thats how come I can close my shop saturday afternoons. Shame it took fifteen years to realise it

[John]

A superb contribution to the forum Kev.

Great advice which I wish that I had had when starting out.

Although I do my own VAT and wages, I hate all bookkeeping with a passion and always put off doing the returns until the last possible hour without actually being late. It looks like you have cracked it and gone for the saner option, you have certainly made a good case... must look into it.

Thanks for sharing your experience in such a readable and informative way