We have a small shop currently trading above the VAT threshold but feeling frustrated that it’s not far enough over to make it worth while and currently working 6-7 days a week.
Need any thoughts if we close one day every week maybe two we effectively earn the same money and also not have to employ anyone.
Turnover looking like £100k this year (including vat)
Vat flat rate scheme approx 7k. Our stock cost would be another 6k ish. So effective £13k of our extra £15k over the threshold is just to pay the vat. If we shut and drop to £85k or less we’d be earning the same money and not milking ourselves.
Thoughts and pitfall please.
Your thoughts are correct. Lots of businesses deliberately reduce their opening hours/days to avoid breaching the VAT threshold, particularly cafes, small shops. takeaways, fish & chip shops etc. You can either open just 5/6 days per week, or you can close down for a few weeks each year (i.e. out of season), to keep your turnover under the limit. As you rightly suggest, you can save overheads such as wages, but also save on power.
Not sure about your thinking re the £7k FRS and also the £6k stock though - if you're on FRS you won't be reclaiming VAT on stock. Or are you meaning stock cost of £6k on the excess £15k of sales?
Once you're over the limit, though, not quite so easy to deregister as you have to get your turnover down below the limit first so there'll be a few weeks/months of cutting your turnover, but still paying VAT on it, until your turnover is below the deregistration threshold.
You also have to be very mindful of timing of sales if you trade just under the threshold. I.e. the timing of Easter as you could have two Easters in the same 12 month period if it's in April one year but March the next, so if you were trading, at say, £84,500 and had two high turnover Easters in the same 12 month period, it would trip you over the threshold again. Same with any other "peak" business period that may not happen in the same month every year, such as festivals, etc. Just something to be aware of as it does trip people up and it's something the VAT inspectors are on the look out for when they look at businesses trading just under the threshold. You may be best to do your sums on trading a bit more below threshold, maybe £82/£83k to give yourself a bit of headroom for unexpected highs.
One final point, the alternative is of course increasing turnover beyond the £100k - thus passing the "breakeven" point.
Thanks for that. The main problem if we push on beyond 100k is we would also need to employ some one as can’t keep doing what we are doing so really need to be at 110k and be beyond but still no better off.
The 6k was the stock we’d need to buy to make £15k which only the pays the VAT bill.
But agree that need to keep further below as do have some peak months.
Yes be careful, it's on a 12 month rolling period, so you need to carefully monitor your income and ensure you stay well below it, to avoid interest from HMRC.
Sit down with your accountant and talk it through with them.
You don't say what your shop does, but what impact will closing 2 days have on the business? I mean will you actually sell less or will people just come another day? If you close will people take all their business elsewhere - does it keep you competitive?
We have a spreadsheet we use along side sage think we can track it.
I’m awaiting our accountant to get back to us at the minute.
Looking at it another way, can you take your 'shop' and add an online option, so you can pick and pack a few parcels when there are no customers, thereby increasing your earnings without increasing your overheads by much beyond the website set up and running costs?
A family member did this, with the opposite effect in a way. They dropped their physical shop hours but in order to not inconvenience customers they increased their internet and distance ordering options. They still ended up employing extra staff as a result of the wider market reach. They were worse off for a couple of years at least, although are now beginning to see the pay off.
My point is, tread very carefully in what you do. Short term gains in reducing your VAT liability may not be worth it in the medium term at least.
Join the discussion
Registering is free, easy, and means you can join in the discussion, get discounts, win prizes and lots more.Register now
Already registered with Mumsnet? Log in to leave your comment or alternatively, sign in with Facebook or Google.
Please login first.