Reader, I breached the VAT threshhold!

[MissEyre]

Hi self-employed board.
I have received excellent advice here over the past year and I'm hoping to crowd-source a bit more expertise now.

I breached the VAT threshhold and turned over £86000 in the past 12 months (April to April ) with only £2000 of that payable to subcontractors. Not quite Xenia levels but it's a lovely change and I am grateful.

My issue is that for many years I have been self employed (not incorporated) but running two businesses. One involves a specialised branch of law, the other involves working directly with young children. They are entirely distinct businesses and most people are astonished that I run them both.

It's the £5k I've earned from the young children business that has pushed me over the £85k mark.

Anticipating the possibility of breaching the threshhold, I have, since Christmas, been switching all my law busines into a limited company which is VAT registered. Whilst that process is now complete, it was a gradual one. So 12 months ago all my income was going to me as sole trader. Next year all but £5k for the children business will go to my limited company. And in the interim, there has been a transition period where some law business income was still coming in as sole trader, some going into the company. My understanding is that HMRC won't care what my "vehicle" was, they will aggregate all the law business stuff together.

I plan to write to HMRC explaining that I have breached the threshold but that I have already registered a VAt-registered company for one of my businesses and that that will receive all new law-business income.

I plan to tell them that I don't intend to register personally for VAT as the children business (which will stay separate with me as sole trader) will never bring in more than £5k or so a year (I think the supplies would be zero rated anyway but that's by the by...)

If anyone has any wise comments on whether that sounds sensible they would be gratefully received. My instincts tell me to contact HMRC before they contact me...

First of all whoo-hoo, thrilled for you!
Onwards to bigger and brighter! (don't know if you were on the "earn £1k" thread some years ago?)

Second of all- I rely entirely on my accountant for advice in this area, and I'm sure someone will come along with expertise.
For what it's worth, my instinct would also be to contact them first.

"Onwards to bigger and brighter! (don't know if you were on the "earn £1k" thread some years ago?)"

thank you! yes, I was!

Ooooh, even bigger well done! (don't know why I say that, but it was a hugely inspirational thread for me in setting up my business).

I'm a little behind you in turnover, but my goal now is to hit €100k/annum in the next 24months.

ok that's just about achievable for me as well Duchess.

Maybe there are others around too....

HMRC should only contact you to tell you that you will need to register for VAT.

As long as you registered within the 30 day period you knew you were going to exceed it's not an issue. Your effective date for VAT purposes is then the day proceeding the day you HAD to register by. I.e. if you knew on 8th May you'd exceed, you must register by 30 June, your effective date is 1 July.

Thanks for replying angereverywhere,

I did register my limited company within the period (before it, indeed, because I was subcontracting some work). But I did not register myself as sole trader and I belive that the HMRC "aggregates" the two "people" who run the business? (i.e. me and my company) unless I explain things to them?

www.gov.uk/vat-registration/when-to-register

Firstly, get a monthly summary of your sole trade income from both businesses for the last 18-24 months. Once you have this, add up your annual turnover on a rolling basis. e.g. year ended 30 June 18, y/e 31 July 18, y/e 31 August 18 and so on up to 30 April 2019. This will show you how many months you have breached the registration limit for. The turnover within you VAT registered company is for a different taxable person, so can be ignored in these calculations.

Then follow the advice in the link above. If HMRC insist on you registering your sole trades, you'll need to calculate the VAT due retrospectively. However, if any of your client's are themselves VAT registered, you may be able to retrospectively invoice them for the VAT due. Don't forget that you would also be able to recover VAT on purchases including some pre-registration costs on capital expenditure and services.

It may also be worth checking if your little business is actually zero rated or exempt, as this will affect your need to register. There is often a lot of confusion on the difference between the two.

Thand you!

The little business is directly educational(imagine sports tuition as an example) to an LEA school.

I will do the rolling calculation as you say. Sounds as though you are that it’s best to make contact if I have breached.

However, I thought they would put the two legal businesses together? (Disaggregation?).

....you are saying.....

You know your law - a limited co is a separate legal entity! It's only your sole trades which get aggregated.

Educational services should be exempt supplies not zero rated, so they wouldn't count towards the registration limit (whereas zero rated supplies would). My advice would be to get you facts straight on the turnover involved and the status of each trade, then call HMRC if you have any doubts. They are surprisingly helpful and will put things in writing.

Thank you!

Educational services should be exempt supplies not zero rated, so they wouldn't count towards the registration limit (whereas zero rated supplies would).

I don't think that is correct.
You charge the VAT and they claim it back.