Question for VAT registered small businesses

[NameIsBryceQuinlan]

I own a small business that sells a service to the public, we have a few branches of the business, a fitness studio, retreats, activity in schools and businesses, a small shop etc we are about to register for VAT.

I think we qualify for flat rate which is 8.5% - my question is anyone who has been in this situation, we have high outgoings and this is really going to be a hit for us... Our prices are competitive locally and we don't feel we can pass these extra costs onto the public.

Is it simply a case we absorb it? I'm sure it is just asking in case I haven't thought of something! And does anyone find business advisors helpful?

You say ‘we’ so can you put part of the business into your name (for accounting purposes only) and part into who you are partnered with (might be a family member or whoever you work with)? Then each of your businesses won’t reach the income threshold.

My businesses are now vat registered but this was how I delayed it for a few years.

I was in the same position, selling something that I was charging top whack for and so couldn’t pass on the vat cost to the buyers, so I had to take the hit. It’s a frustrating period when growing a business.

We actually did have the business split for this very reason but we were at risk of tax avoidance as they were too similar, if we were investigated it wouldn't end favourably for us. We decided to consolidate and concentrate on growing it as a single entity.

Thanks for everyone's comments 🙏

It’s the problem all expanding businesses have, when you reach the threshold you have to charge VAT. Many businesses stay as one man bands, others make customers pay for materials direct, no easy answers. If you have overheads and employ others it’s not going to be possible to avoid charging others VAT

You can't subdivide a business to duck under the registration threshold. You can run separate businesses that aren't technically linked that both sit under the threshold, but you cannot run what is essentially the same business under different names/legal identities to do this. That would be illegal and HMRC would take a dim view.

@NameIsBryceQuinlan
You should speak to your accountant, but they're not always the best placed person to give you advice on your business plan and strategy. Making the step up to being VAT registered is a significant change in the business. Find a business advisor/mentor/consultant. Your local Chamber, BID, LEO, etc. should be able to put you in touch. The first discussions are usually free and without obligation, and in some parts of the country there's funding available to support growing small businesses. Don't think that you're competing on price. This is where you need to get some advice on your strategy.

The general rule of thumb is that if you are a one man band dealing with mostly private customers dont register for VAT and get the client to supply materials which you fit. If you are dealing mostly with businesses that are registered then register yourself, you can then reclaim VAT on tools fuel etc.

Do not try to fool the VAT inspectors they have seen every trick in the book, they are much tougher than income tax investigators

Vat on £500 is going to be another £100, not £50.

as others have said get an accountant or speak to the one you’ve already got before you get yourself in trouble with the inland revenue.

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