Limited and Self Employed!!!??

camille Registered Posts: 11 New contributor 🐸
I have had accounts passed to me for a client whose revenue for 06/07 was £96000.00
He is not VAT registered and he is self employed. Now, I know he has gone over the threshold for VAT so he will be subject to a penalty, but he has stated that he doesn’t want to be a tax collector for the government and also that if he starts charging VAT he will lose his smaller customers.

Is it possible for him to become a limited VAT registered company for the commercial contracts that he does and self employed (not VAT registered) for household customers???
He provides building and electrical services

Please help!!!


  • claudialowe
    claudialowe Registered Posts: 275 Dedicated contributor 🦉
    Hi Camille

    Technically yes he can - as they would be separate legal entities -


    HMRC would see this as an artificial disaggregation(?sp) of the business, as they are providing identical services. If they were providing different services then fine, but as per your facts then no.

    He has also been over the VAT threshold for 2+ years, so they might not let him de-register.

    It will be difficult, but try and get them to understand that their prices will only need to go up by the VAT element on the labour costs, as they can reclaim the VAT on his materials.

    It is a typical manner minded opinion with people wanting to beat the system. The last one that I came across like this - I said that unless they registered for VAT I couldn't act for them, so they went elsewhere, and good riddance!!!

  • camille
    camille Registered Posts: 11 New contributor 🐸
    Thanks you for that Claudia, I can get back to the client with that information.
  • Monsoon
    Monsoon Registered Posts: 4,071 Beyond epic contributor 🧙‍♂️
    camille wrote: »
    He has stated that he doesn’t want to be a tax collector for the government and also that if he starts charging VAT he will lose his smaller customers.

    None of us want to be unpaid tax collectors, but tough luck. While I do have sympathy - registering for VAT does indeed hurt things with small non-registered customers (my firm will have to deal with this by the end of the year, and we're going to have to take a bit of a hit to remain competitive, so I'm not unsympathetic) but he just has to man up and get over it. VAT is part of running a business especially in his line of work.

    I don't recommend artificially separating for VAT unless you have a water-tight business model that is VATman-proof. If he is trading in the same style, with the same contact details, but just invoicing from 2 different entities, the VATman will have a field-day. Given that this chap is already late registering, I really don't think he should try and rock the boat.

    He'll have to register, pay over the VAT and penalties and get on with it.

    Alternatively, he could cease trading. For a week. Then open a Ltd Co - the VAT reg turnover counting will start again and he can delay registering. Again, a little risky and get advice and get it done properly as there are pitfalls with this as well!

    Either way, as a sole trader, the VAT man will pursue him personally for back tax and penalties owed.

    Be careful - I have seen it in the past where late registrations were required to pay over the output VAT to the man, but were not allowed to reclaim input VAT due to late registration. Owch.

    Sorry to be all doom and gloom, but falling foul of tax rules are no fun and can have serious consequences.

    Sorry Camille, I feel like I am being quite harsh and it's certainly not directed at you. I think I've had one of those weeks where I've been very frustrated with clients who don't instruct an accountant until too late, and get themselves into a pickle they so easily could have avoided by instructing one of us.....

    Good luck with this client and, as Claudia says, if he continues to maintain his 'I'm not doing it' stance, walk away. Don't forget your MLR obligations too.

    Have a great weekend :)
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