online store looks like it'll tip over the 70k turnover mark

nice1franko

I've an online store that's in its second year of business. It's not VAT registered. We're half way through the year now and it looks like it'll tip over the 70k turnover mark by the end of the year.

I'm at a bit of a loss as to what to do. I know I need to talk to the accountant - and I will - but was hoping others here may have been in the same boat and have advice to offer.

I also have a couple of questions:

1) Would I really need to hobble the business in some way (e.g. stop advertising or even close for it for a period) to stay under the 70 mark for the year until I can figure out a way to catapult the turnover it way beyond 70k?

2) I've been paying VAT to suppliers. If I was to go back to them and ask for the vat back and give them my VAT no. would they give me the VAT I paid them back? I assume they'd hate my guts for this request?

barneystinson

nice1franko wrote: »

I've an online store that's in its second year of business. It's not VAT registered. We're half way through the year now and it looks like it'll tip over the 70k turnover mark by the end of the year.

I'm at a bit of a loss as to what to do. I know I need to talk to the accountant - and I will - but was hoping others here may have been in the same boat and have advice to offer.

I also have a couple of questions:

1) Would I really need to hobble the business in some way (e.g. stop advertising or even close for it for a period) to stay under the 70 mark for the year until I can figure out a way to catapult the turnover it way beyond 70k?

2) I've been paying VAT to suppliers. If I was to go back to them and ask for the vat back and give them my VAT no. would they give me the VAT I paid them back? I assume they'd hate my guts for this request?

Where are these suppliers who've charged you VAT? I.e. Are they Irish or in another EU country, or both?

nompere

nice1franko wrote: »

I'm at a bit of a loss as to what to do. I know I need to talk to the accountant - and I will - but was hoping others here may have been in the same boat and have advice to offer.

2) I've been paying VAT to suppliers. If I was to go back to them and ask for the vat back and give them my VAT no. would they give me the VAT I paid them back? I assume they'd hate my guts for this request?

When talking to your accountant, do make sure he understands the VAT rules in the countries that you're selling to - they all have different VAT registration rules.

You can't backdate a VAT registration in Ireland, so any VAT charged to you prior to VAT registration is an unrecoverable cost. (You can actually backdate to the 1st day of the VAT period in which you apply for registration - so an application made between now and 31 August will be effective from 1 July.)

nice1franko

barneystinson wrote: »

Where are these suppliers who've charged you VAT? I.e. Are they Irish or in another EU country, or both?

The suppliers are spread evenly enough between Ireland and the UK. 99% of our customers are in Ireland. When setting up accounts with the suppliers we told them we didn't have a VAT no. so they charge us VAT on our orders with them - correctly, as far as I know.

nice1franko

nompere wrote: »

When talking to your accountant, do make sure he understands the VAT rules in the countries that you're selling to - they all have different VAT registration rules.

You can't backdate a VAT registration in Ireland, so any VAT charged to you prior to VAT registration is an unrecoverable cost. (You can actually backdate to the 1st day of the VAT period in which you apply for registration - so an application made between now and 31 August will be effective from 1 July.)

ok thanks. Well, this means I've no choice but to stay under the 70k this year then. There's just no way I'd be able to hand the VAT on our turnover for the year as well as everything we've bought so far - the money simply isn't there.

nompere

nice1franko wrote: »

ok thanks. Well, this means I've no choice but to stay under the 70k this year then. There's just no way I'd be able to hand the VAT on our turnover for the year as well as everything we've bought so far - the money simply isn't there.

You only have to charge VAT on sales made after you register. Revenue can't go back looking for VAT on sales made before that.

Does your accountant understand VAT - or has he just not explained it to you properly?

Gloomtastic!

nice1franko wrote: »

ok thanks. Well, this means I've no choice but to stay under the 70k this year then. There's just no way I'd be able to hand the VAT on our turnover for the year as well as everything we've bought so far - the money simply isn't there.

Are you a limited company or sole trader? I'm guessing here, but as a limited company you might be able to set up another company and trade alongside your existing business - one deals with Dublin, the other with the rest of Ireland?

As a sole trader I faced a similar dilemma a few years ago but an additional business wasn't an option. Luckily for me the Universal Social Charge came along and turnover dropped back down again!

Gloomtastic!

nompere wrote: »

You only have to charge VAT on sales made after you register. Revenue can't go back looking for VAT on sales made before that.

Does your accountant understand VAT - or has he just not explained it to you properly?

If your financial records show that you were on target to break 70k several months ago and you don't register for VAT then, then Revenue can come after you and backdate it.

nice1franko

nompere wrote: »

You only have to charge VAT on sales made after you register. Revenue can't go back looking for VAT on sales made before that.

Does your accountant understand VAT - or has he just not explained it to you properly?

I didn't ask. I thought I understood it from reading up online.

So, I can keep going as I am and when my sales are approaching 70k then I can reg for vat and just charge vat from then on?

nice1franko

Gloomtastic! wrote: »

Are you a limited company or sole trader? I'm guessing here, but as a limited company you might be able to set up another company and trade alongside your existing business - one deals with Dublin, the other with the rest of Ireland?

As a sole trader I faced a similar dilemma a few years ago but an additional business wasn't an option. Luckily for me the Universal Social Charge came along and turnover dropped back down again!

Thanks, that's very creative! Unfortunately, I'm set up as a sole trader too though.

Gloomtastic!

nice1franko wrote: »

Thanks, that's very creative! Unfortunately, I'm set up as a sole trader too though.

Ok are you selling B2B or B2C? If B2B then you should be ok as your clients will be able to write off the extra VAT however if you are selling to consumers, putting your prices up by 23% or else losing 23% of your turnover is a real killer for any business.

Are you married? Could your wife/mother/brother set up another business for you?

You would also be lucky to find an accountant that will stick their necks out and try something 'creative'. You will have to make the call on this one and then get your accountant to follow it.

Good luck!

smeharg

Gloomtastic! wrote: »

Are you a limited company or sole trader? I'm guessing here, but as a limited company you might be able to set up another company and trade alongside your existing business - one deals with Dublin, the other with the rest of Ireland?

As a sole trader I faced a similar dilemma a few years ago but an additional business wasn't an option. Luckily for me the Universal Social Charge came along and turnover dropped back down again!

Oh dear...there's a little piece of VAT legislation called "anti-fragmentation" provisions to prevent this type of arrangement.

nice1franko wrote: »

I didn't ask. I thought I understood it from reading up online.

So, I can keep going as I am and when my sales are approaching 70k then I can reg for vat and just charge vat from then on?

Firstly, the threshold is €75,000 for goods not €70,000.

Secondly, you are obliged to register if your turnover is LIKELY to exceed the threshold within the next 12 months. You don't wait until you actually reach it. It is not restricted to a calendar or tax/accounting year.

Gloomtastic! wrote: »

Ok are you selling B2B or B2C? If B2B then you should be ok as your clients will be able to write off the extra VAT however if you are selling to consumers, putting your prices up by 23% or else losing 23% of your turnover is a real killer for any business.

Are you married? Could your wife/mother/brother set up another business for you?

You would also be lucky to find an accountant that will stick their necks out and try something 'creative'. You will have to make the call on this one and then get your accountant to follow it.

Good luck!

As mentioned there are VAT provisions to prevent this type of arrangement. Perhaps you were lucky(?) to find an accountant who doesn't fully understand VAT.

Being "creative" is something accountants are frequently criticised for even when legitimately putting arrangements in place to reduce tax liabilities.

Why engage an accountant if you decide the advice and get them to "follow it"?

nice1franko

smeharg wrote: »

...you are obliged to register if your turnover is LIKELY to exceed the threshold within the next 12 months. You don't wait until you actually reach it. It is not restricted to a calendar or tax/accounting year.

ok thanks. This is the part I've misunderstood until now. I couldn't believe that I'd have to intentionally slow or close the business for a time but if what you're saying is correct then... apparently I don't, which is great.

Just to be clear, I'm not trying to find ways evade tax here. The accountant is a friend and she's straight as an arrow. She would not -nor would I ever ask her- do anything that wasn't 100% above board. Anyway, if the only way the business can stay afloat is by doing something illegal frankly I'd prefer it to fail right now instead of inevitably later.

sandin

Why aren't you registering for vat? I can't see a reason not to.

Yes, you will have to include vat in your retail prices, but they shouldn;t increase by that much as I presume you already have a margin built in for all the tax inclusive purchase you make.

Currently you are paying vat on all purchases, on delivery charges, on IT services, computers, stationery, advertising etc etc and you can't claim any of that back. Inherently you are charging your customers this vat via your pricing (otherwise you are losing money), so guessing that your product & costs exculding wages are circa 75% of turnover, you are already have 75% of 23% vat built into your prices (even if you haven;t done it purposely), so to make the same profit on goods afetr being vat registered, you just need to increase prices by about 6%.

Probably best to register about end August. You charge vat on sales FROM that date, but you will be able to claim back vat paid on purchases from July 1st. (except on non Irish purchases).

Peterdalkey

I agree with sandin. VAT is not all bad and there are a number of options offered to small business by Revenue. Their website www.revenue.ie has easy to read guides. As pointed out you can reclaim Vat on your business purchases, subject to the allowable items. If you were to buy from other EU suppliers outside Ireland, they would not charge you VAT if you had an Irish VAT number.. Good for cash flow!

Cheers

Peter

nice1franko

sandin wrote: »

Why aren't you registering for vat? I can't see a reason not to.

Yes, you will have to include vat in your retail prices, but they shouldn;t increase by that much as I presume you already have a margin built in for all the tax inclusive purchase you make.

Currently you are paying vat on all purchases, on delivery charges, on IT services, computers, stationery, advertising etc etc and you can't claim any of that back. Inherently you are charging your customers this vat via your pricing (otherwise you are losing money), so guessing that your product & costs exculding wages are circa 75% of turnover, you are already have 75% of 23% vat built into your prices (even if you haven;t done it purposely), so to make the same profit on goods afetr being vat registered, you just need to increase prices by about 6%.

Probably best to register about end August. You charge vat on sales FROM that date, but you will be able to claim back vat paid on purchases from July 1st. (except on non Irish purchases).

Yeah, that makes sense.

I didn't initially register for it because it was cheaper, there was less paperwork and I wasn't sure how long it would take to get the sales to the level that did require it.

It's only now you say it that I see I should have done it from the start. I'll be using lots of stuff ongoing (well, products especially but also, like you say, IT services, computers, stationery, advertising) that I've paid the VAT on.

sandin

nice1franko wrote: »

Yeah, that makes sense.

I didn't initially register for it because it was cheaper, there was less paperwork and I wasn't sure how long it would take to get the sales to the level that did require it.

Aside from the vat issue, if you are going to do circa 80k this year, then you are on the cusp of making a living from the venture and hopefully in 2 years you be both making a living and a decent profit - web retail takes sooo long to make money, but onces it starts, it doesn't stop.

I'd advise to get an accountant on board immediately - they are surprisingly cheap and in most cases you can simply throw all invoces and sales detail down to them and they will do all the form filling for you. As a small company, I'd say you'd get full service for about €200 / month. By doing this it lets you concentrate on what you do best and leave the boring yet very essential part to someone who loves doing that!

Gloomtastic!

Peterdalkey wrote: »

I agree with sandin. VAT is not all bad and there are a number of options offered to small business by Revenue. Their website www.revenue.ie has easy to read guides. As pointed out you can reclaim Vat on your business purchases, subject to the allowable items. If you were to buy from other EU suppliers outside Ireland, they would not charge you VAT if you had an Irish VAT number.. Good for cash flow!

Cheers

Peter

However, as a service provider, with a 70% margin, VAT, like all taxes IMHO, is a pain in the butt! You end up as a glorified tax collector.

Swampy

I'd be careful. I was told that there would be a good chance they would make an inspection when you register for VAT and could retrospectively backdate the VAT to the start of the year. I would seek professional advice.

sandin

Swampy wrote: »

I'd be careful. I was told that there would be a good chance they would make an inspection when you register for VAT and could retrospectively backdate the VAT to the start of the year. I would seek professional advice.

That's rubbish - I really hate this type of unvouched for scarmongering. The revenue would have to prove that the business owner knew at the start of the year that he/she was going to go over €75k for the year. Even at this stage the OP only "thinks" he'll go over the limit, therefore he has absolutely nothing whatsoever to worry about.

I'm in business 25+ years, I've have 3 revenue inspection, and have had other dealings with them for various matters from vat rate to duty rate and prsi issues and I have at all times found them to be professional and decent to deal with - they do not try and trick people and they are not out to catch you unawares, so once you run your business honestly and properly you never ever have a reson to fear any visit / query from revenue.

Peterdalkey

I would have even longer time running my own business and fully concur with sandin on this!

DubTony

You've an online business doing c. €1500 a week, over 2000 posts on boards and no mention of your business in your (non-existent) signature. Well done but you're losing business. Please put your info in your sig, even if it's just to satisfy my curiosity.
I'd be very reluctant to close the business for any length of time. Your customers will go elsewhere, and you run the risk of losing repeat business. Repeat business is effectively free of cost and its where increased profit comes from. You don't want to give it away.

nice1franko

DubTony wrote: »

You've an online business doing c. €1500 a week, over 2000 posts on boards and no mention of your business in your (non-existent) signature. Well done but you're losing business. Please put your info in your sig, even if it's just to satisfy my curiosity.
I'd be very reluctant to close the business for any length of time. Your customers will go elsewhere, and you run the risk of losing repeat business. Repeat business is effectively free of cost and its where increased profit comes from. You don't want to give it away.

I actually did mention it before in two different forums but despite being completely upfront (no shilling!) and getting express permission from mods beforehand I got a bollocking and had the posts deleted. I asked the same mod last year could I create an account using the website name (have seen a few others do this) but got no reply so decided to leave it... just PM 'd you the site though to sate your curiosity!

Thanks for all the advice, guys. It's genuinely helpful and very much appreciated.

I'll post an update in the coming weeks for completeness' sake and lest it be useful to other boardsies/random googlers.

Thanks again