Has VAT registration Ruined my business - Tradesman
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- เผยแพร่เมื่อ 5 ก.พ. 2025
- so how exactly has VAT registration affected my business?
in the video I dive deep into how its potentially ruined my domestic electrical business
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This video is for entertainment purposes only and is in no way intended as a guide or 'how to'.
VAT shouldn't be that tricky for any business. Managing what is owed is done by every accounts package with ease as it's not exactly new. Ways to reduce VAT bills ... if you're above threshold and under £150K, register for Flat Rate VAT scheme - it's 9.5% for an electrician with > 10% materials as turnover. That makes VAT returns trivial, and means you retain a good chunk of the money - and helps you essentially phase in being VAT registered... but also, if you are VAT registered work to build up a "VAT" account (another current account, a business savings, whatever) and put the VAT amount in a separate account when you're paid. Then you've always got the money and aren't caught out. Another great way to reduce this problem is to stop letting customers pay you on long terms - they don't need 28 days or whatever you offer - and whilst you might have time to pay your trade suppliers, you don't have extra time to pay VAT so work to get customers paying more promptly... cashflow is king.
Unfortunately if you do do any subby work the main contractor now doesn't give you the vat( reverse vat charging ) but on the flat rate scheme you still lose 10% of what you do get in so its pretty unworkable:(
@@jameskearney2699 fair enough but I think I’d question if I want to be doing subby work to begin with. Seems to be to my mind a poor earner anyhow.
flat rate is now 16.5% whatever the business so doesnt work either now as costs far out way the benefit of collecting the tax for HMRC!
@@chicagofleet7427 Not sure why you think that - my understanding is electricans come under "General building or construction services" which is 9.5% on the revised list. Unless you are not buying materials to the point you're < 2% materials cost, as long as you're under £150K turnover I was of the understanding an electrician will qualify for the 9.5% rate. Worth an accountant checking *OR* a call to HMRC. Also, this notion you're simply collecting the tax for HMRC is a little simplified of reality. You're really just paying a difference in values, which often is beneficial to you.
You can voluntarily register if you're below the threshold - this can be an advantage if a lot of your clients are also registered, as they can claim back the VAT you charge, and you can claim the VAT back on everything you "buy for the business", if you know what I mean...;-)
;D
😜
Entertainment expenses
(a) not "everything, and (b) I'd be careful about your smiley winky face...
@@Robert-cu9bm No. Entertainment expenses are not relevant here. Entertainment is about spending company money, you might be able to claim the VAT back but you still have an amount of money the company is paying which you would not normally have, and that reduces the profit in the business and means there is less profit to distribute in the form of salary, dividends.
This is the one thing that scares me,as a small business it's very scary knowing I'll eventually have to pay VAT on my earnings. As if the government don't take enough 🙄
Welcome to the system… u ain’t going to grow if u don’t register for vat
What? You don't "pay VAT" you collect it and pass it along to the tax department.
I'm a sole trader sparky, and have worked for myself for 14 years. I went VAT 8-9 years ago and haven't looked back. I opted to be registered even though my turn over was under the threshold, as the type of clients i wanted to attract ( quality higher end domestic , small commercial and industrial) were not keen to trade with businesses they can't claim back from. A good bookkeeper will help you, and as soon as you have a decent system setup, it will fall into place. What i claim back from tools / materials / vans etc is all worth it + you certainly attract clients where your not penny pinching on quotes!!!!
Nick is a superhero helping ordinary people in his community, if he starts to cherry pick the the posh people (not sure how many there are in Stafford anyway) who takes care of our mums and dads with reasonable prices?
Good video !
VAT registration is not as bad as you make out though (a lot of contractors hold it up as some sort of blocker). You say that you are 20% dearer on all your jobs, this is where most get it wrong. You are saving 20% on your fuel, tools, materials, overheads etc etc, so by the time you do all that you are probably only around 7-8% more expensive being VAT registered. You can also claim back VAT for 4 YEARS worth of purchases (tools etc) when you first register, so that will mount up and give you a head start. If you want to grow, VAT registration is a goal worth aiming for, if you are happy staying small then all well and good but keeping an eye on rolling turnover can be a pain if you are always hovering around the 85k mark. All the best !
this is it man after everything else it isnt 20%.
Back in 1983 I was offered an exclusive contract for a business account if I went VAT registered. I registered, added VAT to all my retail customers and the 'contract' never came through. It killed my business.
Only draw back I've found from being vat registered is working for contractors with the vat reversal scheme that came in last year were you no longer receive the vat on your invoices. So we are paying all the vat on materials but not claiming it back until the vat return is due
Great job Nick as usual, but remember your private customers only pay vat on your labour/profit, you should be discounting the materials vat in your pricing
Hi, can you elaborate on this please? Its a new one on me.
I can see a major problem coming up for one man bands, as a chippie the price of MDF has gone up aroung 60% in the last year, this does not make me any more profit but is pushes turnover up, it must be the same with other trades. I have started another business in a completly different sector (event catering) and intend to kep them both under the limit.
I’d be more worried that I wasn’t turning over more than £85000 if I had the overheads you must have with unit to pay for a van apprentice etc
A defo thumbs up for that pal 👍 personally as a now solo electrical contractor who as been avoiding the VAT threshold now for 20+ years I know exactly where you are coming from. Its bad enough competing with the incompetent bodgers
Thanks for the video Nick, I have been over the £85k in 2020 and claimed an anomaly, last year I was a couple hundred under.
I have been daunted by the prospect of VAT, I just like to keep things simple so I can crack on with being on the tools.
I think the comments from people more knowledgeable will be helpful to us all.
Thanks Nick and everyone who comments useful info
Summed up my thoughts perfectly. I'm a freelance designer in the same position. Would rather keep things as they are knowing that I won't really gain much for being a few grand over the threshold.
Great video Nick, I'm pretty close atm and moving to solar soon so I'm sure I'll be over, keep up the good work
I've been VAT registered for 20 years, never had a problem with it. Yes, a bit more paper work every 3 months, but I have used cashflow manager software supplied by my accountant. At the year end, I send them a copy of the year and from that they sort out my return.
The reverse charge took a little time to get used to, but that is only for one customer that I have to do that for.
20% off tools, fuel and vehicles is an advantage for me.
I'm a sole trader that has one employee.
My best turn over was 102K a few years back. Most years its between 70 to 90K.
Im not even in the trade, just stumbled across a video one day and find it quite interesting, just thought I'd get that out there, keep up the good work 👍🏻
I feel your pain Nick. I turned over approx £110 k in 2021, However after speaking to my accountant he said that If part of the turnover was a one off. ( for me it was I had two jobs worth 28K between them which would never ever be repeated) then I could apply for an exemption. My accountant done this on my behalf and Voilla, I am not paying VAT .
Just a thought. The other thing you said about working four days a week, I have taken it a step further and now only work 3 day's but to be fair to our younger sparks I don't need to pay a mortgage anymore. Take your time guy's and pick your jobs carefully. Never turn down work. Over price it and if you get it then it is worth doing.
Remember we have all done a lot of studying and now with the new A2 regs my New CU Installs have almost doubled in price just on materials alone.
All the best everyone.
Mick
You are paying VAT. You’re paying VAT on absolutely everything you use and consume. The only person not paying VAT is your customer. If you’re VAT registered your customer pays VAT on your labour and materials and you don’t. I don’t understand why you’re choosing to pay your customer’s tax bill?
So your materials have doubled, but there would be 20% VAT of that you could have claimed back! If, as you say, you are pricing high and picking your work, having to pay the VAT man shouldn't be an issue to you - you'll have figured that into your quote.
Good video mate,
Been VAT for 5 years now, headache but cant get away from it now 😟
The cost of expanding a businesses
Not read other comments but sure someone must have suggested just open a 2nd business. (Legally)
Keep original business as Sparks then simply have 2nd as Bundy Media etc.. Then take all earnings/payments from TH-cam, endorsements etc through that business. That way with what you said you be back below threshold …
Keep the vids coming Nick 👍🏻
He can potentially do that but that might not be as simple as you make out - he may end up with cross company trading (perfectly legal, but as always has implications).
My thoughts exactly.
I wouldn’t entertain this, that’s one way to get royally fucked hard by the vat man not if but when they find out.
I found after having to go vat opened the gate for more customers who only wanted dealt with vat rated tradesmen,and if we got a biggish job it was no problem for them to buy the materials,as long as you have a good accountant then fine 👍
VAT registration will 100% help you grow a more successful and profitable business. But the hard yards are very much in the first 2 years or so. Keep it up mate you are doing awesome.
I've spoke on a recent YT short about this..... totally drop the £85k threshold... drop VAT from 20% to 10% and have all business' registered for VAT. then all us small 'trade' domestic workers are all charging VAT.
We all pay VAT anyway, so 10% extra for a customer who didn't pay it before... it's hardly a deal breaker.
It also makes you look more professional to some.
Those who want cheap labour... let them search for those cash in hand workers on Market Place.
I’m more impressed you’ve managed to be an electrician for 8-9 years and managed to stay under the threshold. I’m just myself and since year one I’ve been on the limit. This year (year 3) I am now having to go VAT registered
You can get a decent accounts package and it's very easy. Just take photos of your receipts and invoices. Devote an hour a week to input everything. You don't need to keep loads of paper anymore if you have photos. It's very rare to get a VAT inspection unless your looking dodgy.
You can claim back 4 years of VAT from purchases (if the company still owns those goods), and 6 months back on any services.
Exactly right !
My brother runs his own upholstery business. He gradually expanded and took on a member of staff, but went over the limit and then had to register for VAT. He did it for a year and then decided it wasn't worth all the hassle, which was exactly as you described. He then scaled back down and stayed under the limit. It is a massive obstacle to the expansion of small businesses. The government should realise this and take on board your suggestions.
I was in that trade too, the margins are shit and the fabric houses make absolute bundles on the margins from india and tiwan etc. By the time the disigner has put their 100% on your labour and £20 worth of silk from asia has had its comision and fees put up to £1600. a pair of curtains has hit 3k to the customer and your the lucky cunt to measure , make and fit and supply the linings and interlinings for £400-600. Glad I am out out of that crap.
No it's not, it's simple.
If it's that difficult get your accountant to do it.
@@Robert-cu9bm Never have I in my life heard anyone refer to VAT as simple
Even the VAT experts I worked with understood there was a lot of complexities especially when importing from overseas
@@deepmystic5850
But he's not importing.
It is simply adding vat to invoices, making vat deductions on expenses (it's written on all vat receipts).
Then add and subtract every quarter.
@@Robert-cu9bm It's not that simple transitioning from non paying VAT to paying VAT
There are numerous laws, rules that the layman may not understand
I was billed 18,000 for VAT despite me keeping a tab on my rolling turnover, I experienced some bug with my sales report on my online website
Despite this
HMRC was sure I owed the money
It was only when I hired a VAT specialist team they were able to drop this bill to £2500
Why?
Because of a few rules I didn't know applied to me
You are one a million if you call VAT simple
It's one of the ongoing problems with it
It was meant to be simple
It isn't
I love the tips,
Our family business has good contracts however we always stay below the threshold, we are a small business, 1 van, 2 workers, most of the time we won't invoice above a certain amount a month, customers can think its because we have forgot, but there's always method in delaying an invoice
Totally agree with upping the limit and that it most definitely should be on profit not turnover!
I could have done with this video last year as I've only just handed my books in (in a shoe box) and my accountant has informed me I should have gone vat registered in August last year. Lack of understanding, lack of information, lack of education and lack of time to even think about it, I always thought it was April to April. I was doing well, now I have to dig myself out of the vat mess as I haven't collected any of it. Stung.
Could you register the TH-cam and Electrician businesses as 2 separate Limited companies so that each company is below the VAT threshold?
You can not do that to evade vat registration, if HMRC find the two business are viably linked they will take them both as being one and the same and both turnovers will count towards the 85k threshold
This is called disaggregation. And in the example of Nick, I would suggest there is are two independent companies operating. An electicians business and a multimedia entertainment company. I would be happy them being two separate businesses, and I am an ex HMRC VAT inspector. If it was say a garden centre that sold plants and sheds, then you could not disaggregate that business to a plants business and a shed business. Things like customer base and where the businesses operate from come into play.
@@GoProGeeks
YT is advertising for his business, these are linked.
If his YT was showing people the art of origami then yeah, you could claim them as separate businesses.
@@Robert-cu9bm you would need to show a link between him receiving customers purely from seeing his videos. Yes there will be instances where this may occur. But A) it would not be the norm, and b) HMRC would need to prove that nick intends to use it to advertise for work which would be near on impossible to actually prove beyond all reasonable doubt.
@@GoProGeeks do you really wanting to be fighting that in court.
HMRC unlimited resources
NB making a living not a killing
youve got a common misconception there, being vat registered doesnt mean your 20% more, your materials and expenses were allready vat, just you payed it, the only extra vat on your work now is your labour, when i quote for a new boiler (as a plumber), my quote is normaly about £100 more, on a £2.000 quote.
I was going to say that as well, I’m in Australia so we are only 10% GST, I’m claiming the 10% back on everything I’m buying adding markup then adding GST to the total parts+labour, so I’m only 10% more on the labour than someone that’s not registered for GST because they can’t claim the 10% back on the parts.
This is spot on, VAT has many more benefits if you are anywhere close to the threshold anyway.
It means as a business you save 20% on many things.
@@peterlogan706 I was going to add the same. I’m a plumber vat registered and I found I had growth year on year.
VAT applies to both labour and materials…
Nick , VAT can complicated but it doesn't have to be confusing, or in fact a negative. Also there is no scope for development if you try to limit yourself to trying to stay under the threshold.
Working as you do in the Domestic area, i.e. for directly the Client, and not as a Subby for another Main Contractor, you will have to ask your Customer for more money and you won't see any of that. However, if you want to look at it differently I think you will be happier..
By now being able to reclaim your VAT on materials, tools ,fuel, and several other expenses so your actual costs have gone down. So, with a little hike in Accountants fees and maybe a bit more diligent paperwork you shouldn't really notice a massive difference. I would be surprised if you need to increase your overall costs by anything like 20 per cent.
The VAT on your Materials and fuel VAT, if you include for fuel, would have been getting paid by your Customer whether you are VAT Registered or not.
When you are estimating your job, you could price it on the materials/fuel etc costs pre VAT, add on the labour cost and add 20 percent to the total. If that Client is a Business they can claim it back from their Client, if its the Homeowner they are stuck with it ultimately.
So in Summary add 20 percent on to Labour only, and it will be great once you get used to it.
Buying a Van for £10,000 and not caring that it would have been £12,000 last year will fairly soften the blow.
Also, one more little point, there are plenty of little one man bands out there scrambling about for a couple of hundred in the morning and a early finish to hit the Pub or the Golf course, leave that time of work to them, and enjoy the higher value, interesting work that comes with having a profitable business with the chance to employ others.
You are becoming successful and profitable, paying VAT is a consequence of making a decent profit and not paid until there is one, it's not a punishment.
Tip one do your vat return yourself it's not hard. Also have multiple businesses that invoice each other. NB Training could employ Adam, NB supplies buys and sells the hardware. But at the end of the day vat is vat. I used to do all my own accounts and just employ the accountant for end of year returns. Make sure you claim vat back on everything and write equipment off as soon as you can. Keep growing Nick. Oh any advice for someone who can do the work and only wants to keep building control happy doing my own stuff.. I went down the electronics route but started doing electric and electronic training over 30 years ago.
There are restrictions and rules on inter-company trading, so it isn't as simple as you're implying.
@@SquirreliciousMe I didn't say it was simple but is possible when you diversify your services.
I feel your pain, I had the same issue 30 years ago and worked silly hours away from the family ... Working alongside other VAT-registered companies proved to be the way out for me.
I would agree VAT threshold for trades on profits not overall income from buying materials. Specially the cable has gone up 40% in the last year or so, new regs to install AFDD costing £130 a pot... Had a call to replace consumer unit with 8 circuits so said ok it would be between £600-£700 and when got there realised the client is in process of apply for HMO so I explained the material will cost £600 alone to comply with latest regs.
Just in hourly wages, working alone. I'm at 85.000 euro a year. My materials past 3 months were over 45.000. All residential. How on earth would you be able to stay below the 85k threshold if you are doing all your business legally?
idd unless you only work as subcontractor . only invoice your labour .. then turnover - costs = profit ..
Don't get this also .. here in Belgium average house rewire it at least 5-10k or more ( prices are crazy now for cable etc ) not doing crazy ( domotic / smarthome ) . You can have a turnover of 100K .. and only earn 10k profit . lool ..
I personally sell products I make online, when I started I was buying advertising and everything trying to get found. Now I am trying to hide myself a bit too keep under the VAT threshold
If you do get a fine they are normally quite understanding and if you keep in order for the next few months they do give it back. I believe it's surcharge rather than a fine, but it's been a few years now.
You still have to do almost as much paperwork not being VAT registered. It's all computerised anyway. Keeps you disciplined, as now you have to get your books in order every quarter. Also, you dont need to charge 20% more. Only your labour, and markup, is 20% more. Your costs become less.
Nick I feel your pain, I was working as a CIS Systems Security Consultant from my limited company and after 3 years I cleared the threshold and compounded with the changes to IR35 it literally shutdown my company almost over night. I could no longer compete with the prices of the of the self employed who managed to stay below the threshold and couldnt compete with the bigger companies who had multiple staff and were able to be more competitive than me on timelines as well. I think its like the tax code, once you just get over the threshold its a massive hit that can cripple your business but if you can weather it and push on well past the threshold then your Company can thrive
Correct me if I’m wrong but you don’t add 20% on top. In my business we get the parts price, ex vat, add our mark ups, profit margin labour costs etc then add the vat and that’s your quote all in. It doesn’t automatically make you 20% more expensive. In my experience being vat registered has helped me to grow my business, and opened up doors.
Exacly ..you need take prices excluding vat from wholesaler ad you profit and THEN add the 20% VAT .
Value added tax .. tax on the profit you make .. for the goverment :-)
The price will increase a little tiny bit but not the full 20% .
Other thing for labout by the hour .. then the cost will go up 20% idd .
@@kittsdiy No, VAT is not tax on the profits you make, it's a tax paid by consumers when they buy things.
When you as a business pay VAT to HMRC, you are simply paying the VAT that has been paid to you by the end consumer. It is in no way linked to profit, it doesn't come out of your business's profits (that's corporation tax if you are a limited company).
There is a concept of input and output VAT, and the VAT you pay to HMRC (if not on a flat rate scheme) is the difference between them.
So as a business you may pay for supplies which include VAT but you obtain the suppliers VAT registration number so you can claim the VAT back. And then you charge VAT to other businesses and consumers. The overall effect is, that you as business do not pay any VAT, you are simply collecting the VAT from Joe Public, the consumer, and paying that to HMRC. It's quite clever the way it works.
The company is not losing money by paying VAT to HMRC.
@@deang5622 Value Added Tax .. rings a bell ? The consumer pays the VAT .. and the VAT goes up when you take profit . Eg. you buy a fuse board for 100 pound excl vat. ( including vat = 120 pound = 20 VAT the the wholesaler needs to pass trough to VAT admin ) You take a profit of 30 pound on the fuse board you sell to the consumer . So 100 + 30 = 130 pound excluding VAT for the constumer = 156 pound .. the VAT had raised from 20 pound to 26 pound . because you addes some value (profit ) . This is with everyting you buy as consumer .. But as a business ( B 2 B ) you can detuct VAT . Altough you have to pay it at front . In the case here .. when you are VAT registred or not .. the consumer always pays some kind of VAT .. but little less because the profit/margin is added on the price including vat . At least this is how it works in Belgium .
Here we have 21% procent vat on most luxery products . In case of house rewiring buy a contractor ( electrician ) in some cases 6% . ( the electrician pays 21% on all the stuff at wholesaler and charges 6% to the customer and the differnce he gets back from the VAT administration ) . In cases of B2B electricial work to buildings we also have a 0% procent rule . In this case the customer doenst have to pay VAT in advance ( and ask back to the VAT administration ) .
@@kittsdiy I know how VAT works in the UK. I have run two VAT registered limited companies for over 20 years. As the directors of those companies it is me that signs the forms which are submitted to HMRC in the UK and I literally write the cheques (or did when we used to make payment that way).
In other replies I explain how VAT works, though I have purposefully left out a little detail around the concept and calculations around input and output VAT.
What I have said about VAT in the UK isn't up for discussion: because it is fact and 100% accurate.
That’s crazy. Sounds like the threshold is far too low - here in Australia it’s $75,000 (£43,200) so basically every serious business is registered for the equivalent GST. It’s only 10%, not 20% too.
Being vat registered nearly crippled our florist. We got a 20 grand tax bill due to the loans over covid and then a 5 grand vat bill the month after. Like 5 months post covid we had to pay 25 grand out right and we had to take up a loan to clear it. Don’t see any good in being vat registered unless there’s a company that wants work done by a vat registered company only.
3:40 *benefits. I'm a sole practitioner chartered accountant who has many times had to deal with this question. One important point about about 10:39 is that the customer must genuinely buy the materials himself in his own name, not use the sparky's trade account, as the latter course would still result in the purchase counting towards turnover, even if the customer paid the account directly. A snag can be that many wholesalers will not deal with non-trade, so the customer must use a supplier such as Screwfix who will sell to anyone. Re 11:07 , it is important to check the tax point rules if this is to work. When you are paid may not be relevant to what date the transaction takes place on for VAT purposes, nor is the invoice date definitive. Tradesmen should check with their accountants if they want to play this game.
In Finland the VAT is same for everyone, there is no flat rate or anything. If you're business turnover is over 8000€ you have to be VAT registered. Below 8000€ and you can but don't have to. Then there are four different VAT, 0% 10%, 14% and 24% depending on the product or service. For example medical and similar 0%, taxi and bus fare 10%, food 14% and most are 24%
Great video nick.. You are bang on!.
Sorry to hear it's causing you grief Nick :-(. Some people (customers) say they see it a sign of dealing with a more established, trusted set-up. I've even been told by some firms they only deal with people who are VAT registered. All the best.
Only your labour will be charged VAT extra on invoices, you will be reclaiming VAT on materials, and your markup need only be as before, plus you will get vat back on all other purchases. I'm retired now but was s/e spark for 52 years and VAT for about 40 of them. Worth staying registered in my opinion, not much extra book keeping,
I’m dangerously close to exceeding my vat threshold so I’m slowing down for a while an 85k turnover only gets me roughly half that as profit & I really can’t increase my prices so would have to take it on the chin! 😳 so even if I claim vat back on all my expenses that’s still a huge chunk out of my profits for fun!
The main problem is that I can’t control my sales that well . I can keep an eye on my profits & make less, but no idea how much damage that will cause my business.
It should be on earnings not turnover ! Feels like a really unfair penalty when so many businesses have different expenses/profit ratio 😠 just seems like anything to keep the little people little discouraging you from becoming successful & striving for a better life!
I change car an van clutches, parts can be 70% of the bill, would a customer be happy paying the whole sale ? I'm not making a fortune an vat would complicate a simple, cost effective service I provide, they don't make this game easy, thanks for the video
I'm happy to be corrected but getting clients to pay wholesalers/suppliers direct is frowned upon by HMRC. I thought they classed it as "Contriving to remain under the VAT threshold". I know some builders who do extensions and they get their clients to open accounts at Builders Merchants and buy all the materials so the builder stays under the threshold which I thought was against the Rules. I've been VAT Rgistered for about 15yrs and it is tough competing with people who manipulate the system.
The clients would be unable to claim the VAT back unless it was a new build, would they?
@@anthonybragg Hi Anthony and cheers for the reply. My point wasn't about the clients VAT position but the builders/electricians etc attempts to prevent them entering the VAT system by contriving to purposely remain under the threshold. In contriving to stay out of the VAT system they are preventing HMRC from having the VAT on the labour element of the work. As I said ,I'm happy to be corrected. HMRC do not like seeing people contrive to reduce liabilities. It was similar with the IR35 issue and self employed working for the same employer all year round and not actually being truly self employed so HMRC bought it criteria that people needed to meet otherwise they were classed as employed ,with all the additional costs involved for the employer.In getting the client to pay for materials the builder etc is avoiding paying vat on the labour element which over the coarse of 1 yr on numerous jobs can add up to £1,000's of lost vat . There was talk of HMRC reducing the threhold which would mean lots more businesses needing to enter the vat system. Not sure if they have shelved it.
I agree totally that for micro businesses VAT threshold should be based on gross profit.
I have no idea if this would be accepted by HMRC, but what about setting up a second business "N. Bundy Supplies". All significant purchases of materials would be done by this business and invoiced to the customer by this business. Cost to customer of these materials would be unchanged. Your "Operations" business would only need to record labour and minor expenses in its turnover; which would be invoiced to the customer separately. Thereby keeping turnover in step with workload.
Our vat rates in Ireland are a bit different but anyway, you shouldn’t be 20% higher than other contractors. Let’s say last year you did a job for £200. £100 of that was material cost and £100 was your labour. You’re now getting 20% back on the material so it’s only costing you £80. You still want your £100 pound labour so your quote is now £180 PLUS VAT @20% = £216 (total cost to customer) you then give this excess £36 to the government. You’re only £16 higher which is only 8%. But you could get this even lower, your labour rate could reduce to say £90 instead of £100 because you’re now getting VAT back on your fuel and tools and any business expenses. This would make your new quote £170 plus VAT = £204. Now you’re only 2% higher than last years quote. Hope this makes a bit of sense 🤘🏼
Finally someone sees the benefits, spot on!
Not registering for VAT introduces a glass ceiling for any business and they'll never grow :-)
here in Australia we have gst(goods and services tax) at 10% but we're required to register at $75000 income which is about $43000 pounds.... doesn't sound too bad with vat....the only bonus here is that generally everyone is registered for gst.
Going to say that, hard to find any business of significance under 75k.
The Vat threshold has been the same for the past 15 years. So in reality forcing small businesses into VAT registration too early. I specialise in repairs that a lot of sparkies will not touch so as I say to my customers I do all the jobs most electricians are not interested in. Plus I don't do installation work so customers know I will put a light up or fix a storage heater but wil not fit a CU or rewire a kitchen.
I also complete my spredsheets daily and file my paperwork so at the end of the year there is basically nothing I need to do with regards to my tax return.
Basically you ar caught in the VAT trap of being too big for existing customers and too small for new commercial customers.
Your are right about how you present yourself and turn up on time plus respect your customer. Also its what you want out of life I am happy doing what I do and at my age don't need the hassle of employing people and yes if it came to it I would take a month off
I have been vat for a few years and hate it, feel as if all I do now is pay tax bills and never have much to show for it, the threshold should be much higher for businesses that have high material costs, turnover doesn’t mean you are making money and you shouldn’t be punished for trying to grow
So in the UK as a costumer you can escape VAT by choosing the “right” person ?! Only on labor I assume. That is crazy.
Pay cash, get it even cheaper
In Australia, its $75,000 AUD. About 35,000GBP. There is basically zero businesses that are not regsitered for it (we call it GST). Its pretty simple to deal with for modern accounting software, do they have Xero in the UK? Bank feeds automaically inserted into the software day by day. GST is only 10%. Sounds like everything works the same way. Just keep you running your business properly. Sounds like they need to lower the registratio amount so some companies don't have an unfair advantage.
I've been VAT registered for best part of 20 years and it hasn't been that big a problem for me - I always keep my accounting software up to date with invoices and I always keep VAT receipts etc. For small items a VAT recipt isn't essential any more which is helpful but you still have to keep a record of the purchase in your accounting software. Some of these applications allow you to scan receipts/invoices easily with mobile app which makes it easier. I would always keep the receipts I can so that if there is an investigation I don't have a massive gap between the totals I am submitting and what I have physical evidence for. It is important to remember that although you have to charge 20% on top of your base price, you have to factor in the fact that your materials and other vatable expenditure doesn't have the VAT included so your costs are lower than the competition who isn't VAT registered - so the VAT is only really added to your own labour costs (and those of any employees/non vat registered subbies), therefore you can reduce the net price accordingly.
Love your work and channel 💓
I totally relate to this topic.
In summary it is all about choices and if we are suited to being an honest grafting engineer or an entrepreneur.
Growth means more money being turned over, there's no escape from vat..... Growth also means: inventory control, supplier management, employing people, training, quality control and understanding competition. Rewards are different... Job itself is different. You have skills to be either.
Crossing that threshold is tricky, but depends on what you want. For people like me, my job is my life and I enjoy it... So I like to think I'm the entrepreneur 🙂
Keep going! Maybe it's not all bad... Just a different way of looking at it.
Why didn’t you register the TH-cam business separately from the electrical business, surely one is a service and one is an entertainment business?
two sets of accounts for what benefit?
@@edc1569 to bring the income from both below the threshold
@@edc1569 Not having to be VAT registered as an electrician…
That’s a really good vidz explaining about vat !! And Have you got your New load-out bag 💼 thanks ⚡️👊
You’ve grown your business organically and slowly which is the best way to do it. I followed a similar path, quite a bit quicker but just because of opportunities that presented themselves. Massive piece of advice for you, and anyone else is get a decent accountant who is familiar with xero or similar. I have no extra responsibility personally and it costed an increase each month in his payment but, on an 85k minimum turnover 200 a month on accountant is reasonable. A good one will do VAT, paye, personal tax return and run the ins and out via xero.
For me a massive pro to the VAT is my price to client stayed the same, so of £100 + VAT I received £120, £20 straight into VAT account as long as you do that religiously there will always be a surplus in this VAT account at the end of the quarter allowing an easy means to build a business cushion or to draw this surplus every 3 months
The surplus comes from material cost for materials supplied. If you do including VAT price plus VAT with certain clients you can make 40% margin on materials
I'm not self employed, or anything like that, but I always thought companies got a trade discount for materials and put a mark-up on to the customer. If you get the customer to buy the materials aren't you doing yourself out of a bit of mark-up?
VAT eligibility on all materials is a big killer and very much impacts everyone and every industry differently.
If I was to go my own business, my materials would be almost nothing so would under the VAT scheme to go labour costs only.
With shortages and inflation, I can only assume more people will be dragged up due to material.
It would get hard working a 5 day week to keep under as an apprentice gets towards the end of their apprenticeship I would think as their experience and competence grows, toward the end, it will be like having 2 qualified sparkies most of the time.
Is there every push back from clients that want a single invoice covering everything?
You shouldn't need to slap 20% on the whole invoice cost (a £170 job doesn't become £204).
You will be getting your materials 20% cheaper... your van, laptop, tools etc are all 20% cheaper...
I'd increase your labour only by 20% and take the VAT saving on the tools etc as a bonus/increase of profit.
For example, if a job was £120 materials (inc VAT) + £50 labour = TOTAL £170...
now it'll be £100 materials (because you will claim the VAT back) + £50 labour + £30 VAT = TOTAL £180
You'd probably save that £10 elsewhere by claiming the VAT on tools etc but if you can still get the job at a slightly higher price why not!
It is very important to keep the VAT separate from anything else.
You may buy materials at prices which exclude or include VAT.
When you are costing a job out, you need to understand if the supplier is charging you VAT or not and identify if they have provided or will provide you with a VAT invoice providing their VAT registration number.
If the company you are buying from is not VAT registered, then the price they are charging you is the cost that you will include as the material cost in the job you are doing.
If the company is VAT registered and has or will provide a VAT invoice with their VAT registration number and it lists the VAT amount, then the cost of the materials is the invoiced amount without VAT.
That is how you have to cost the job.
Add in your Labour cost, and other costs, total it all up.
Then you have to add the VAT on top. Then you present an invoice to the client showing:
(1) Total job cost excluding VAT
(2) VAT amount and VAT rate (percentage)
(3) The total invoice amount (total job cost plus VAT amount)
(4) Your VAT registration number
Doing it any other way is wrong.
A re-wire has a lot of materials cost, you should be claiming that back? Also can you claim VAT on inputs like IT, telephones, fuel, etc, etc? You probably shouldn't be just slamming 20% onto the price of previous quotes?
But of course the guy who charges five grand, compared to your six grand has to pay more for his trips to the wholesaler - if you buy a grand's worth of stuff CEF, your competitor paid twelve hundred - because you have the VAT on those prices to claim back. Your fuel is less, and it means that to balance out, you're not 20% worse off - it's just the difference between the input and output tax. It depends but people often quote a 10-15% increase, so you can offset things. I think the one year you quoted to back date the VAT is actually 4?
We do domestic , commercial , industrial work , I do feel sorry for my domestic customers sticking vat ontop , I think it should only be charged when the bill payer is vat reg'd , sole trader / one man bands are cheaper without the vat on fuseboxes etc
in exact same boat as you. people say about claiming stuff back. nope. all you are doing is putting 20% ontop of your profit and giving it to hmrc. the materials allready have vat on, so nothing changes there,
if you put profit on materials that has to have vat added to the profit obviously.
All it does for me is makes me more expensive and costs me more money to operate.
my materials bill last year was 115k wish every tradesperson was vat registered. to make it fair for us all.
i feel from you from a joiner in the same situation.
I'll be going VAT registered very soon and I've been anxious about the whole thing, I can't really say this video has put my mind at ease either 🙃. I've only been self employed 2 years so I haven't quite got to grips with paperwork as it is so this will be another thing to worry about. Going though my invoices it turns out I've turned over around £140k too so I'm expecting a fine. It somewhat feels like a punishment for doing well.
Get your accountant to do it.
Mine chargers £350 a quarter and they do all the vat, bookkeeping, end of year accounts and payroll.
I post my receipts, they do the returns.
Mindset is important here. When you here of Big Business preople making millions and not paying tons of TAX its annoying, right?
Turnover isn't king, its only profit that counts. What money is yours at the end of the day will be whats left after all the legal dedcuctions.
If you make a huge profit you must pay your legal share of that back to the Government, if you make a smaller Profit your share will go down. Simple really
Its meant to be complicated. That is the point. the UK is business friendly, and what that actually means is BIG business friendly.
Big business hate competition. Putting in road blocks like this on the way up is meant to stumble competition that is cheaper, yet able to do the same quality work.
Big business can play the tax system like a violin and make it so the rules don't affect their bottom line. But to the small guy, the amount of busy work, nitpicking and risk (Being able to butt heads with HMRC over the legality's of tax codes as written) needed to make the claim backs balance the charges is monumental.
Cracking vid on non lecky. Wouldnt it be nice if you could operate 2 companies, one that is vat registered and used for biz to biz and another that is not vat registered that is used for res. Guess it cannot be done?
This is what I thought, but then it would mean two lots of books to keep on top of? and im assuming one would have to be a ltd company so you can be a director and the other just a sole trader, but im not sure on that one.
The thing you said about customer paying material bill is more important now the prices are soaring
One option you can do is reduce the labour charge per hour slightly so that the vat on your labour cost isn't going to hit your customers so hard. That way the comparative quotes are going to be that fair out. Average rewire the materials are 1k Inc vat. That material cost is the same vat registered or not. Your labour cost might only be 500 more than comparative quotes but you value yourself on what you charge not on others. Everybody when they go self employed should be vat registered. No threshold, even playing field
something doesn't add up... if you're not registered, you have to pay that VAT on whatever you buy for the jobs, so those 20% have to be on the bill somehow
I get my customers to pay for the materials as being a heating engineer oil boilers £2000.00 plus soon push you over the vat limit
I found the comments here useful. I’ve been aiming to stay under as well, but reading the comments it seems that being VAT registered is a good thing if one intends to grow and do less, but earn more, employ teams of people to run the business etc..
£650 for an RCBO board is still cheap in my opinion. Even still, the customer is already paying the VAT on the materials before you were vat registered so it's not quite as much of a price increase as you'd expect.
About average for a full RCBO in Bournemouth but cheap for the bigger cities IMO.
@@MartiA1973 I live in a smaller town and id still say it's cheap for my area too. 🤷🏻♂️
VAT, Fuel tax, income tax, inheritance tax.... about time we just clubbed these politicians in.
Go work elsewhere then it pisses me off we have it easy here in the uk ecspeilly as electricians we earn good money even after taxes can support a family easily and have enough for ourselves not many countries a tradesman can make that possible
Most of em dont pay tax (wll not the correct amount anyway)
You could try a lower tax country, but you'd be surprised by some alternative cost burdens on your business!
@@radosaw4616 Calm down twinkle! I'm not even an electrician 🙂👍
@@keithg1xfl Exactly, they make millions with dodgy dealings, don't pay a penny in tax, yet us normal people have to account for the last 10p.
I'm sick and tired of being mugged off by those jokers.
Unfortunately adding 20% on top of your estimate can and ofter does lose you the job.
I think they should lower the threshold to £20k to level it up. So many more advantages of being registered than not imo. It’s also a piece of piss to sort out, if tradify doesn’t do it get a proper accounts package like xero and it’s all done for you automatically. Literally 3 buttons and it’s submitted for you.
Try competing with Amazon in retail where they don't pay any UK VAT....
Without seeing all of your invoices, it is a hard one to comment on, but if around half of your invoices are for parts and half for labour, then your customers were already paying 10% VAT. As you can claim back VAT on tools and business essentials, then you should be able to trim your daily rate slightly as you overhead costs should be lower. Or go the other way and aim for a premium market (high end stuff that low cost sparks are not interested in). I generally favour trades people that are VAT registered as it shows that they have a thriving business that does not cut corners.
Love a TH-cam business man,
Keep it going 👍
If things change and you want to de-register, you will have to pay back the VAT that you have claimed i.e. Van + Tools if you still have them also Stock etc.
i always made sure i stayed under the limit, came very close a couple of times, i just could not be assed with the extra paperwork which i hate....if i did work for a vat registered company, which was not very often, they bought the materials, to claim the vat back and i supplied the labour..most of my work was domestic though, and yes, never worked on a friday if i could help it! ....retired now though, every day is a friday now! LOL
when i was considering going self employed the only advice which was repeated over and over and over again was to find an accountant that would save me more money than i was paying him
in the end it was too much of a change but i know folks who are happy and i know folks who are stressed out so you have to find something that will work for you
beacuse the last thing you want to do is have your life ruined by the tax man
You’ve got it wrong adding 20%, that’s why you’re losing work. Say as a sole trader you’re making 50% net profit, pre-tax, then you should only see a 10% increase in costs to the client.
Because the 50% of your turnover that are running costs are now 20% cheaper. Obviously not everything is charged with VAT, but you get the idea. You shouldn’t be drastically more expensive.
Thanks for explaining nick 🙌🏻🙌🏻
Vat threshold has been at £85,000 for a number of years. I do not expect the goverment will increase it so gradually everybody will have it to pay
Good one, not there yet but it does worry me,
Some of the comments you have had are helpful too
Nick, I feel your pain, been VAT registered for 10 years now, you could always do work for Cash!!
Best video you've done lad, I'd like to add one thing, you are only 20% more on your labour. If your material are £1650 plus VAT, your competion will be £1980 (the same), you will be more but not necessarily 20%
Going VAT registered does not make the invoice 20% more as you already charged VAT on the materials . There was no mention of the Flat rate scheme, which I have been on for 15 years, and actually make a small profit from each year with minimal administration costs. Anyone considering going VAT registered should defo look into it before they commit to the standard scheme
I’d be interested to know more about the flattate
Do you not add on % for the materials you by for you customers ?
Could you not split your businesses and run the TH-cam side as a separate company. You could pay the “TH-cam” side as a marketing budget. From the electrical side. Split some of the earnings??
I’d seriously consider it, see if it’s legal etc.
Vat registration should only impact labour rather than wholesale items unless you are making a hefty markup on items, but really it wouldn't work out 20% extra overall unless your adding a bit of extra profit in there.
Hi nick
I think you gotta put it down to experience it happens.
I'd go for a 4 day week for sure! you could go fishing or something? work to live!
Been sparking for 30 years i pay vat on the materials i buy obviously but i dont change vat on my labour i just issue the invoice of whatever the material cost and add on my rate of pay. I personally dont see how being vat reg would have helped my business it would have made my prices 20% more and in the domestic market that will loose you the job. PS cash is king