The final post in our 2022 series on Taking Your Business To The Next Level is from accountant Caroline Boardman. Caroline’s values are Integrity, Personal, Supportive, Confident, Confidential and Approachable. She understands the challenges of managing your business and your family life – because she has those challenges too. Caroline wants to help you find the right balance, and make the financial side clear to you so you can focus on what you do best – running your business.
You can read the other posts in the series here:
5 Ways To Grow Your B2B Business Using Social Media
Personal branding: taking your business to the next level
How to create a 2-page marketing strategy
Making your business a tough nut to crack
Profit First: Next Level Cash Management
You Don’t Have To Do This Alone
Want to be a great manager? Follow these five rules…
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Whether you are a sole trader or trading through a Limited Company, if your UK Vatable sales income (turnover) reaches £85,000 over the last rolling 12-month period, then you must register for VAT with HMRC from the 1st of the month after next.
What is the rolling 12-month period, some examples: –
On 12 July 2022, the period assessed is 13 July 2021 to 12 July 2022 and you must register from 1 September 2022.
On 7 December 2022, the period assessed is 8 Dec 2021 to 7 Dec 2022 and you must register from 1 Feb 2023.
You get the picture, its your turnover figure from the last 12 months at any given point, regardless of the tax year dates or your financial year end and you must register very soon after reaching the threshold, which in turn means that if you are approaching £85k sales, you need to be tracking your income closely (I recommend getting accounting software and an accountant if this is you).
5 frequent worries about VAT and how to overcome them.
My customers won’t pay 20% extra.
They will! You have built a business to a level of £85k sales, think about that, it’s amazing. Did you expect this would be the case? Your product or service is valuable and your customers clearly love you, as long as you communicate this next level with them they will pay the extra, it’s unavoidable – everyone knows HMRC have rules that we all need to follow and registering for VAT when you reach the VAT threshold is one of them. If some of your customers really can’t afford the extra 20% (you will not lose all your customers overnight, trust me!) then new customers will come and the new price will be quoted and that’s what they are signing up for… all new quotes will include VAT so this really is you moving your business to the next level. Well done.
I’ll never be able to afford to transfer 20% of sales to HMRC each quarter.
If you take my advice and charge the customers the VAT, this 20% will be extra income… get your cash management in order with a simple cash management system like Profit First and this will be an automatic process.
I want to avoid registering for VAT…. Can I split my business into 2?
You can only do this if it is legitimately 2 separate businesses, for example if you have products and services and they are unrelated or if you have an accountancy practice and are a yoga teacher. If the reason for splitting the business is to avoid registering for VAT, HMRC have thought of this! Disaggregation VATDSAG05150 – Disaggregation: the law – HMRC internal manual – GOV.UK (www.gov.uk)
I’ve not got time for all the paperwork.
Get a bookkeeper! Accountants will do your year end accounts and file your tax returns; bookkeepers can help you with the day to keeping on top of your finance transactions so they can really help when it comes to VAT. As a client of CBC, when you VAT register we automatically assign a bookkeeper to your business.
I’m a sole trader at the moment and have no desire to change that.
Do I need to be a Limited Company to register for VAT? No. Sole traders who reach the £85k VAT threshold must register for VAT and can register for VAT as a sole trader.
If you want to take your business to the next level, you absolutely need to tackle the mindset blocks around VAT. I hope this blog has helped you to identify them, if you need help overcoming them speak to Helen! She’s been through this milestone in her business. And if you need some practical accounting and tax advice, get in touch via my website.
Caroline Boardman
Caroline Boardman Consulting
December 2022