VAT Registration

[Tony]

I am intending to go in to partnership with a friend
of mine from the start of November.
We are both self employed plumbers working for
ourselves and believe we can earn more working
as a partnership.
I have a turnover of £35k pa and my future partner
has a turnover of £31k and neither of us is currenly
registered for VAT.
Since our combined turnover is likely to be over
£61k over the next twelve months, do we have to
register for VAT immediately or can we wait until
1 April 2007 and voluntary register at that time?
Thanks - Tony.



--

 

[Peter Saxton]

I am intending to go in to partnership with a friend
of mine from the start of November.
We are both self employed plumbers working for
ourselves and believe we can earn more working
as a partnership.
I have a turnover of £35k pa and my future partner
has a turnover of £31k and neither of us is currenly
registered for VAT.
Since our combined turnover is likely to be over
£61k over the next twelve months, do we have to
register for VAT immediately or can we wait until
1 April 2007 and voluntary register at that time?
Thanks - Tony.

Neither.

Why do you want to voluntarily register?

1 April 2007 has no relevance.

Only register voluntarily if it is to your advantage.

You have to register after your turnover reaches £61k in the last 12
months.

 

[Ronald Raygun]

I am intending to go in to partnership with a friend
of mine from the start of November.
We are both self employed plumbers working for
ourselves and believe we can earn more working
as a partnership.
I have a turnover of £35k pa and my future partner
has a turnover of £31k and neither of us is currenly
registered for VAT.
Since our combined turnover is likely to be over
£61k over the next twelve months, do we have to
register for VAT immediately or can we wait until
1 April 2007 and voluntary register at that time?

As plumbers, presumably the majority of your turnover arises
from charging for your own labour, and only a small portion from the
input cost of materials and other expenses. Therefore, once having
to charge VAT, you would immediately be making yourselves more
expensive to your customers by 17.5% of your VATable profit (which
includes all of your labour charges). Unless you have (or expect to
acquire) a customer base consisting mainly of businesses which
themselves are VAT registered (to whom therefore this price rise is
invisible), you would be making yourselves less competitive relative
to other one-man-band plumbers.

This would tend to make you earn less than before, so unless whatever
factors you think will improve your earnings are going to increase
your turnover by more than it would be reduced by your loss of
competitiveness, you're onto a bad thing. What factors make you think
the partnership could earn more than the sum of its parts?

 

[Tony]

Neither.

Why do you want to voluntarily register?

1 April 2007 has no relevance.

Only register voluntarily if it is to your advantage.

You have to register after your turnover reaches £61k in the last 12
months.

Our partnership tunover is going to hit £61k anyway and so we
will eventually have register anyway.
I was unsure if the measurement of turnover took in to account the
turnover we have already accrued as separate self emplyment
businesses prior to going in to partnership. If so would we have
to register immediately.
We expect our tunover to grow as a partnership because it will
mean we can take on bigger jobs which tend to pay more. We
will also be doing some subcontract work for VAT registered
businesses.
Tony.



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[Peter Saxton]

Our partnership tunover is going to hit £61k anyway and so we
will eventually have register anyway.
I was unsure if the measurement of turnover took in to account the
turnover we have already accrued as separate self emplyment
businesses prior to going in to partnership. If so would we have
to register immediately.
We expect our tunover to grow as a partnership because it will
mean we can take on bigger jobs which tend to pay more. We
will also be doing some subcontract work for VAT registered
businesses.
Tony.

Your self employment isn't relevant to the partnership VAT
registration.

You should register voluntarily if it is to your advantage and that
would involve you calculating how much VAT you could claim as inputs
and the effect of charging VAT to your non-VAT registered customers.

 

[Ronald Raygun]

Your self employment isn't relevant to the partnership VAT
registration.

You should register voluntarily if it is to your advantage and that
would involve you calculating how much VAT you could claim as inputs
and the effect of charging VAT to your non-VAT registered customers.

If it were to their advantage to delay or avoid registration, could
they split their workload so that some jobs are undertaken by each of
them in a self-employed capacity, and some are handled by the partnership?

In other words, would it be possible for each of these three entities to
turn over just under the registration threshold? Or would, if for example
the partnership turned over £50k and each of them also turned over £50k on
their own, the partnership turnover be attributed (in proportion according
to their share of interest in the partnership) to each of them, and so
if the proportion is 50-50, each of them would be deemed to be turning
over £75k, which would then compel either both of them or the partnership
to register?

 

[Peter Saxton]

If it were to their advantage to delay or avoid registration, could
they split their workload so that some jobs are undertaken by each of
them in a self-employed capacity, and some are handled by the partnership?

In other words, would it be possible for each of these three entities to
turn over just under the registration threshold? Or would, if for example
the partnership turned over £50k and each of them also turned over £50k on
their own, the partnership turnover be attributed (in proportion according
to their share of interest in the partnership) to each of them, and so
if the proportion is 50-50, each of them would be deemed to be turning
over £75k, which would then compel either both of them or the partnership
to register?

Not really. HMRC would consider it to be disaggregation of business
activities.

 

[Jon Griffey]

If it were to their advantage to delay or avoid registration, could
they split their workload so that some jobs are undertaken by each of
them in a self-employed capacity, and some are handled by the partnership?

In other words, would it be possible for each of these three entities to
turn over just under the registration threshold? Or would, if for example
the partnership turned over £50k and each of them also turned over £50k on
their own, the partnership turnover be attributed (in proportion according
to their share of interest in the partnership) to each of them, and so
if the proportion is 50-50, each of them would be deemed to be turning
over £75k, which would then compel either both of them or the partnership
to register?

HMRC take a dim view of business splitting. Best case scenario is that
HMRC begrudgingly accept it. Worse case scenario is that it is all
found to be a sham and they will want the arrears of VAT from day 1 of
when the partnership 'should' have been registered.

From a practical point of view, plumbers books are often quite shocking,
so trying to keep 3 sets of completely separate books is going to be a
tall order. Even if the bookkeeping is reasonable, trying to stack up a
case of being 3 separate businesses will be hard. e.g. you may well
need 3 accounts with the same supplier and make sure that the purchases
therefrom are kept separate.

--
Jon Griffey FCCA CTA
Hackett Griffey
Chartered Certified Accountants & Registered Auditors
2 Mill Road, Haverhill, Suffolk, CB9 8BD

Tel (01440) 762024

www.hackettgriffey.com

See website for disclaimers

 

[kevin bailey]

Our partnership tunover is going to hit £61k anyway and so we
will eventually have register anyway.
I was unsure if the measurement of turnover took in to account the
turnover we have already accrued as separate self emplyment
businesses prior to going in to partnership. If so would we have
to register immediately.
We expect our tunover to grow as a partnership because it will
mean we can take on bigger jobs which tend to pay more. We
will also be doing some subcontract work for VAT registered
businesses.
Tony.

Personally I'd register straight away to get it all sorted. That way you
don't have to worry about when you go through the threshold and your
accounts/books are already geared up for VAT. If you become vatable you
may not notice for a while and then would be landed with a large VAT bill
for which you have not been collecting from your customers.

Also, being VAT registered forces you to get your books up to date every 3
months which is no bad thing,


Kevin

 

[Peter Saxton]

Personally I'd register straight away to get it all sorted. That way you
don't have to worry about when you go through the threshold and your
accounts/books are already geared up for VAT. If you become vatable you
may not notice for a while and then would be landed with a large VAT bill
for which you have not been collecting from your customers.

Also, being VAT registered forces you to get your books up to date every 3
months which is no bad thing,


Kevin

It may not be a good idea if they have a lot of non-VAT registered
customers.