Help new client

mc25

Hi all, I hope somebody out there with more experience than me will be able to help me on this one. I have a client who has approached me to do his book keeping. The business he runs is web hosting plus selling domain names. The question he asked me was he has recently started the business, but he was thinking of registering for VAT as he tend to think he is loosing too much money due to all the purchases he is making and he cannot claim the VAT back. His turnover is no where near the VAT threshold. He wants to voluntarily register for VAT. Also he is employed and on his employed job he has hit the 40% bracket for tax, he wants to know the best option i can provide him to pay less tax. According to him, he is willing to take the loss without increasing his prices up when he get VAT registered. So if he was charging let say £10 for his services he is still willing to charge that amount after he is VAT registered. What are your views on this one? Any views will be appreciated.

Thanks

groundy

If your client is making a profit then they will lose money by standing the VAT in there sale price. The VAT they will lose on there sales will be more than the VAT that can be recovered on expenses.

Also may be worth considering incorporating the business if they are a 40% tax payer.

However, if the business is making losses there may be more VAT to recover and any losses can be offset against there employment income.

mc25

thanks

Groundy, Thanks alot for your reply. According to him, he said at the moment he dont appear to be making any profit and that's why he was looking at registering for VAT so that he could claim most of the VAT back. I had thought about mentioning to him the idea of incorporating. I am still researching on all options, need to get back to him by the end of this week. So any help will be highly appreciated.

Thanks

deanshepherd

If he isn't making any money then incorporating (or indeed registering for VAT) is probably another cost he can do without.

The question to ask is whether he mainly supplies VAT registered businesses with his services or the general public.

groundy

The point I was making about incorporation was from a Tax point of view. In that as a 40% tax payer, they will save money by incorporating rather than just bearing an additional expense.

Although I agree it would be good to know if the sales were provided to VAT registered businesses then obviously there is no reason for the client to stand the VAT and should add the VAT to there sale price.

Dean

groundy wrote: »

The point I was making about incorporation was from a Tax point of view. In that as a 40% tax payer, they will save money by incorporating rather than just bearing an additional expense.

It appears you've overlooked the loss relief rules?

Regards

Dean

groundy

Dean wrote: »

It appears you've overlooked the loss relief rules?

Regards

Dean

In my earlier post I mentioned the ability to offset losses against employment income. My mention of incorporation was if the business was in profit.

Dean

Apologies, my oversite. That'll teach me for 'skipping over' a thread.

Regards

Dean

groundy

Dean wrote: »

Apologies, my oversite. That'll teach me for 'skipping over' a thread.

Regards

Dean

No worries apologies accepted :thumbup: