SteveR started this topic @ 10:39 on 27/01/2006
Hi all,
Slightly odd question this but here goes.
I am in the process of setting up a new business that will consisit of myself working on software development and delivering training to both the consumer and business markets.
I have decided that I am going incorporate the business as I beleive that it provides credibility and the workload involved is no significantly more than I should really be doing anyway if I am controlling my business properly.
With regards to VAT registration I do not technically need to register as I do not expect that in Year 1 I will be anywhere near the 60k threshold. However, it does occur that it is going to look odd on client invoices and foe products I sell on the web if I don't have VAT included.
My bizarre question is, should I register for VAT for credibility reasons?
I'd appreciate any thoughts.
Thanks
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SteveR
RE: VAT registration for credibility?
michaelassociates | 27/01/2006 10:48 AM
Hi Steve,
Being registerd for VAT is purely for the VAT man and whether you wish to be VAT registered depends if you would like the extra paper work and if you can balance the extra VAT to your prices.
Being VAT registered definately gives the business/company extra credibility. Being incorporated and VAT registered will not mean you will be successful. It will still be up to you to do the grinding work to get the business promoted correctly.
You will need to balance whether you can afford the extra VAT on top of your prices, and if it will be financially viable for you to do so.
Another question to ask yourself is, do you have many expenses coming in?
Hope this helps.
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RE: RE: VAT registration for credibility?
SteveR | 27/01/2006 11:29 AM
Thanks for the reply Michael.
I will have relatively few expenses so my input VAT will be a lot lower than the output so I would pay more VAT here than say a company needing raw materials to produce something.
I think I am struggling here with the concept of selling things without VAT - just because I am not used to buying anything 'VAT free' generally speaking.
. i.e. if I was to sell a product online for £10 for example I would not need to charge VAT. This would seem odd to the buyer would it not? Should I (or do I need to) state on the web site in this example that I am not VAT registered?
So, the real question is which of the following situations would I be more profitable:
a) Sell product for £10 (maybe slightly harder to sell as credibility slightly less due to no VAT registration)
b) Sell product for £11.75 - hopefully be a little easier to sell because of VAT credibility but harder because it will cost my customer more.
If this somewhat basic assesment is correct, then it seems clear to me that the VAT credibility thing isn't likely to be as important as better prices.
Gut feel at this stage, but does this sound reasonable?
Many thanks
Steve
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SteveR
RE: VAT registration for credibility?
James Smith | 27/01/2006 12:01 PM
Steve,
It really depends on who your customers are.
If they are all VAT reg businesses then it is probably sensible to register. You get to reclaim your input VAT, and the customers won’t really care as they will reclaim the VAT in their books.
If all your customers are private individuals then they won’t really care if you are registered or not, and probably won’t even notice. Therefore by registering you will be really putting your prices up. VAT is a real cost to consumers.
I know I am plugging again, but I have a paid for e-book all about VAT, and includes a quite detailed section about whether to register or not. It comes with an excel workbook to work out what works for your businesses from a maths point of view. This is aimed squarely at someone in your position, and works out a lot cheaper than me go through it with you personally!
http://www.jamesesmith.co.uk/ebooksvat.htm
In terms of the limited company this IS more work, and WILL cost you more than being sole trader in terms of having your accounts produced etc as they are a lot more involved. Don’t underestimate the extra complexity, although that said it does build credibility and as you quite rightly say if you are keeping good records it isn’t that onerous, its more than you need to be a lot more diligent, and cant fix things retrospectively.
To my mind most of the credibility of your company will come down to how you represent yourself, and how good your service is rather than the legal/tax status.
Regards,
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James Smith
Chartered Accountant
www.jamesesmith.co.uk
01235 536 773
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Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT
RE: VAT registration for credibility?
Jonny | 27/01/2006 12:59 PM
One thing I woudl take into account is all the extra paperwork required to be VAT registered.
I, personally, would avoid registering for VAT until you have to - keep life simpler for the time being and focus on getting the business going rather than paperwork!!
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RE: VAT registration for credibility?
creacom | 27/01/2006 02:32 PM
The vast majority of our clients are VAT registred so we decided to go down that route too. To be honest once you get your head around calculating VAT and filling in your return its not a problem. Organise yourself from the start, keep good records and its actually quite simple. Once you are registered you will be sent a blue guide that explains everything very well.
Best of luck
Jacqui
www.creacomdesign.com
Graphic Design • Web Design • Print
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www.creacomdesign.com
Graphic Design • Web Design • Print
RE: VAT registration for credibility?
SteveR | 27/01/2006 04:41 PM
Thanks to everybody that has replied, very useful advice.
At this stage of my business, i.e. month 1 I think there is a danger that I spend too much time faffing about with things like this rather than getting on with the business. So, after everybody's input I am going to make a decision! Drum roll......I'm not going to register for now.
Sorted - ticked off the list.
Many many thanks.
Steve
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SteveR
RE: VAT registration for credibility?
fastfences | 27/01/2006 06:33 PM
Good decision,
I know I'm late on the post, but in my business, selling mainly to private, VAT has never been an issue. I agree with other that there is a 'credibility' aspect if dealing with major businesses, but that is easily overcome after your 'credibility' has been presented by your image and service.
Cheers, Nigel
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