VAT query

ToxicPaddy

I currently work full time and also have a small part time business on the side that I work at evenings and weekends.

I have noticed that I am starting to build up some expenses, travel, phone bills etc with this business but its at the stage where the income is still small, no where near enough to live on and with the current economic climate I'm not sure if its wise to give up a steady job to pursue it full time.

What I was wondering is what sort of costs are involved to register for VAT so that I can claim back certain expenses, VAT on products I purchase for the work I do etc?

What would be a base income I should decide on for making it worth my while switching to VAT registered.

I have spoken to some accountants and to be honest, they just gave me the same information that I ready on the revenue.ie site but to be honest I am no where near the minimum thresholds they set, if i was, I would have gone fulltime long ago.

I am sure there are some people on here who are or have been in the same position and I was wondering from personal experience what do you guys think?

Tox

ascuteasabutton

We've had a couple of these queries in work lately, there is for and against electing to be VAT Registered.
If you have any kind of business head you can do the VAT returns yourself if not you are looking at maybe €250 + to pay an accountant to do them. I assume you are also registered for Income Tax, if so you probably have an accountant already. Another option is to get a bookeeper purely to do the VAT, there are plenty around at the moment that will work for alot cheaper than an accountant.

A good way of deciding whether it will be worth your while is to put a spreadsheet together of your Income and Expenses for last year allowing for all your business related expenses etc and it will be a quick way of seeing whether you are going to end up paying VAT as opposed to claiming it back. Also you need to decide if you will be registered on a Cash Receipts or Accurals basis this will have an implication on your Sales VAT, again this will depend on whether you have Debtors or whether you get paid straight away for whatever you are selling.

Hope this helps!

ToxicPaddy

Thanks for the info ascuteasabutton..

I have a friend who does my books for me, I keep track of most of it myself and have gotten a few tips as how to improve but they put it all together into accounts and it helps me keep up to date on things.

I'm trying to nail this on the head before it gets out of hand so I review everything at the end of each month. With it being only mid March, its becoming more obvious that I need to make a decision on sooner rather than later..

Most of what I do is providing a service rather than products, though the odd occasion I have to purchase parts/equipment for a customer. Everything I purchase is usually paid for usually by credit card/bank transfer/paypal up front as I don't want to get into a situation of owing money to creditors and most customers pay C.O.D.

As for business overheads, they were minimal, apart from petrol and phone bills. When these started mounting up, I decided it was time to start acting. I'm looking at getting a business phone account which will help cut down that cost but I need to be registered for VAT to get one apparently. So I've decided to start looking at other expenses I can claim back and VAT etc.

Tox

ascuteasabutton

So most of your Sales will be at 13.5% which is good as alot of your purchases will be at 21%. If you work from home you can claim say 1/3 of the VAT on your ESB bill, same with a private phone you can claim 1/3 as business expenses so you could claim the VAT on that too. Small things like stationary, diesel, phone bills,ESB etc all add up and can all be claimed.

Also if you were to buy a new Computer/Laptop for example you could claim the VAT on that as long as it was for business use. Or if you decided to buy a small van for the business the same thing you could claim the VAT back, so if you were planning to expand the business at any stage in the next few years it may be worth your while registering.

Just one point to note is that once you elect to register for VAT you usually have to stay registered for about 3 years unless the business is being wound up as Revenue may question why you registered and you may be subject to Audits, we have had one or two cases like this in the past 12 months.

ToxicPaddy

ascuteasabutton wrote: »

Just one point to note is that once you elect to register for VAT you usually have to stay registered for about 3 years unless the business is being wound up as Revenue may question why you registered and you may be subject to Audits, we have had one or two cases like this in the past 12 months.

I didnt know that.. thanks for the info.. will make me think a bit more about it.

Tox

Kinetic^

If you're well below the limit at the moment then you need to ask yourself, who are your customers?

If they're mostly residential, who won't be VAT registered, then I'd hold off as long as possible to register as they won't be able to claim it back and if you drop your prices to compete then it will eat away at your margin.

Example:

Labour: 100
VAT: 21
Invoice total: 121


If you charge that to a business then they're only really getting charged 100 but a residential customer will take the hit on the VAT as well. I'm sure in your industry there are some that will charge the 100 excl. VAT or for cash in hand so you've to think of this in terms of competitiveness as well as your possible obligation to register for VAT.

ascuteasabutton

ToxicPaddy wrote: »

I didnt know that.. thanks for the info.. will make me think a bit more about it.

Tox

This isn't set in stone it depends really but Revenue have definitely become alot more strict than they were during boom times and you don't want to draw unnecessary attention to yourself if you dont need too but having said that they may never question it...it sometimes comes down to the person that is dealing with it I find from personal experience!

Any other questions you can PM me...i'm sitting a VAT exam in a few weeks so may have more answers by then when I get around to studying
Best of luck with the business!

ToxicPaddy

Kinetic^ wrote: »

If you're well below the limit at the moment then you need to ask yourself, who are your customers?

If they're mostly residential, who won't be VAT registered, then I'd hold off as long as possible to register as they won't be able to claim it back and if you drop your prices to compete then it will eat away at your margin.

Example:

Labour: 100
VAT: 21
Invoice total: 121


If you charge that to a business then they're only really getting charged 100 but a residential customer will take the hit on the VAT as well. I'm sure in your industry there are some that will charge the 100 excl. VAT or for cash in hand so you've to think of this in terms of competitiveness as well as your possible obligation to register for VAT.

That's a good point, something I definitely need to consider. I have a fair few home based customers and my business customer base is growing a little every month. So is there a was to differentiate between them on the books, can you not charge home customer VAT and use it solely for the business customers??

ToxicPaddy

ascuteasabutton wrote: »

This isn't set in stone it depends really but Revenue have definitely become alot more strict than they were during boom times and you don't want to draw unnecessary attention to yourself if you dont need too but having said that they may never question it...it sometimes comes down to the person that is dealing with it I find from personal experience!

Any other questions you can PM me...i'm sitting a VAT exam in a few weeks so may have more answers by then when I get around to studying
Best of luck with the business!

Well I want to keep everything above board and trouble free, but at the same time minimise my outgoings and maximise my profits. No use running a business badly and losing money. Writing off expenses and claiming VAT back will help this but if its going to cost me customers as Kinetic^ said, it might be something I need to take a step back from and take another look at.

Good luck with the exams by the way..

Tox

professore

ToxicPaddy wrote: »

That's a good point, something I definitely need to consider. I have a fair few home based customers and my business customer base is growing a little every month. So is there a was to differentiate between them on the books, can you not charge home customer VAT and use it solely for the business customers??

I would not register for VAT if selling to consumers if I didn't have to.