Unexpected growth

Miss OMMC

I own a small manufacturing business since 2013 which sells products and services within Ireland. The manufacturing process produces relatively large quantities of waste materials and early last year I came up with an idea to use these materials to produce an alternative product which I began selling through a ‘popular online marketplace’. Initially this was just a side-line hobby to make use of the waste material, cut down on waste costs and make some extra money.

However, in the course of the last 11 months, this has grown substantially with almost 1000 sales worldwide with the majority going to customers in the USA. I am now at the stage where this is overtaking my existing business.

The level of growth has been completely unexpected and has given me little time to consider VAT and income tax implications. Should I take all the sales and include them in my returns for my existing business or would it be better to set up a new business? As most customers are not business customers and are based in the USA, I have not charged any VAT. However, there were some throughout the EU. Is there a VAT implication for these?

I haven’t spoken to my accountant about this yet. I just want to check if anyone has any ideas on the best approach.

Thanks

jimmii

You should have been charging VAT to all the customers I would worry that could be very costly. I assume your company is VAT registered right? How long has this side business been operating and where has the profit been going? Is it an Ltd or are you a sole trader? If it's an Ltd I would just use a different trading name. You should get talking to an accountant straight away about the vat though you don't want revenue contacting you first.

Miss OMMC

Thanks for the reply.

I am currently a sole trader (VAT registered) and charge VAT on all sales of existing Irish business. The sideline business has been operating since April last year and any revenue made from that has gone straight into my personal bank account.

Yes I will be seeking the advice of my accountant thanks.

VincePP

difficult one.

You could argue that the sideline is a private business unconnected to the main business and you are selling privately as a private seller and submitting any income for income tax, but it may not wash.

For selling to customers outside EU, unless you have tax registration in that country (doubtful) you would charge Irish VAT if your are registered for vat. Similarly, even its its within the EU, unless the person you are selling to has a vat registration number and they are using it in connection with their business, you must charge Irish VAT except when you exceed a certain amount. Then you must register in that country and charge their rate and make returns to them.

The only way around it is if a third party is doing the selling and you are letting that thrid party take the "waste" product for free or small charge. That third party could be a relation such as mother or father and they could pay tax on it and then they may "gift" you an amount every now and then.

Miss OMMC

VincePP wrote: »

difficult one.

You could argue that the sideline is a private business unconnected to the main business and you are selling privately as a private seller and submitting any income for income tax, but it may not wash.

For selling to customers outside EU, unless you have tax registration in that country (doubtful) you would charge Irish VAT if your are registered for vat. Similarly, even its its within the EU, unless the person you are selling to has a vat registration number and they are using it in connection with their business, you must charge Irish VAT except when you exceed a certain amount. Then you must register in that country and charge their rate and make returns to them.

The only way around it is if a third party is doing the selling and you are letting that thrid party take the "waste" product for free or small charge. That third party could be a relation such as mother or father and they could pay tax on it and then they may "gift" you an amount every now and then.

Hmmm....interesting! Thanks Vince. Food for thought!

jimmii

As you're a sole trader there is no difference between you and the business from a tax perspective so everything should be declared by you for all tax purposes you can't have a bit on the side like that. You really need to get talking to an accountant as soon as possible.

Could the OP not setup a different company (a Ltd company I suggest) and put all those transactions through it and take advantage of the VAT threshold? It was 50K or thereabouts the last time I looked, although that was some time ago. But if its still the same seems like the OP could pass those transactions off without VAT and register now and charge VAT from here on. (Assuming OP hasn't made 100's of thousands already)

jimmii

Possible hopefully that's something the accountant will know. I would have thought with OP being a sole trader that all the business activities are going to fall under the same umbrella when it comes to VAT. Not sure off hand but think the thresholds are now 37.5k for services and 75k for goods most of the time but again that could be out of date but I would imagine whatever it is its going to be bundled in with the main business.

pedronomix

Sales to countries outside the EU are not subject to VAT and are not the same as intra EU B2B sales, you most likely have no VAT issue and your 2014 income tax is not yet due.