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VAT moving from self employed to Ltd coy

Some VAT advice please on a move from self employed to Ltd coy

Self employed trader Joe has contracts to provide services to a number of companies. He makes a small profit from the fixed rate VAT scheme but has reached the turnover limit and will have to return to conventional VAT accounting (but will probably move to cash accounting).

He'd also like to move to Ltd company working to reduce personal liability but there are a few worries. Until contracts are transferred to the Ltd coy, Joe Ltd will perform the work, bill self employed Joe for the services who will in turn bill the clients.

If possible, Joe Ltd will not register for VAT immediately as trader Joe would not be able to recover the input VAT.

Questions:

  1. Can trader Joe be registered for VAT and Joe Ltd not? Will HMRC view them as related entities and require both to be VAT registered straight away.

  1. If trader Joe can be registered but Joe Ltd not, would HMRC consider the paperwork invoicing exercise between the company and the trader to be an invoicing scam as trader Joe will be making a good profit on the VAT element.

If idea doesn't fly, trader Joe plans to return to conventional VAT accounting immediately and Joe Ltd will register under conventional accounting straight away, thus both trader & company will be able to claim input VAT without hassle albeit without the VAT profit element.

Advice will be sought from HMRC on this but he/we would like to get the idea straight first.

TIA

Reply to
fred
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"fred" wrote

Howso? If "trader Joe" bills the client 100+VAT = 117.50, of which he passes 17.50 to HMRC and "Joe Ltd" bills him 100 (no VAT), then he'll receive 117.50 and pay out 117.50 and so have no profit....?

Reply to
Tim

In article , Tim writes

I miss-spoke (typed) and said fixed rate VAT scheme instead if _flat_ rate VAT scheme which is a simplified accounting scheme where depending on your trade classification you pay a different fixed percentage of your gross turnover to HMRC but are unable to claim VAT on inputs. In this example trader Joe's classification requires him to pay 11% of gross with a further

1% discount in the first year of registration making 10%.

Joe Ltd bills trader Joe £100, trader Joe bills client £100+VAT=£117.50 but only has to account to HMRC for £117.50/10=£11.75 giving a profit of £17.50-£11.75=£5.75 on this transaction but is unable to recover any input VAT. HMRC sets the flat rates for each classification based on typical business inputs recovery in that field.

Reply to
fred

There's not a profit of £5.75 because there's the input tax you can't claim.

Reply to
Peter Saxton

If the turnover is as you say you would have to register within about

5 months.

Yes. No.

You are only making a profit after you take into account VAT on inputs.

Reply to
Peter Saxton

There is no intention to avoid registering altogether, just to delay it for a more convenient time, say the end of January.

Great, I really wanted to avoid Joe Ltd having to charge trader Joe VAT which he would not be able to recover due to his flat rate scheme.

Quite right, initially all that was being billed was the service element so inputs were low and there was a profit on VAT. I just analysed the figures again today and it is borderline (just how HMRC like it I suppose ;-). What I wanted to avoid was having the work carried out by a Joe Ltd that had been forced to register and trader Joe not being able to recover the input VAT.

Thanks for the input Peter, much appreciated. I will suggest that trader Joe comes off the flat rate scheme at the end of January when the next period ends and arrange for the registration of Joe Ltd to start under the cash accounting scheme at the same time.

Reply to
fred

Initially very low inputs so there was a profit element but now less so. Still, the flat rate scheme has served its purpose by letting the trader concentrate on growing the business rather than getting bogged down in admin.

Reply to
fred

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