Guild member David Sudworth talks about his own experiences of registering
for Value Added Tax…
Mention VAT to most tradespeople and theyíll go running for the hills. But with business-savvy people entering the trade, and demand for our professional services, the number of sweeps going VAT registered is climbing.
My own business, Mr Soot Chimney Sweep, went VAT registered earlier this year. There are a number of considerations to take into account, so you must always get your own advice from a suitably qualified financial professional.
But here’s five top tips I learnt when navigating the VAT minefield:
Tip #1 – Keep An Eye On Your Takings BEFORE You Hit The Threshold
The last thing you want is be told that youíve accidentally gone over the VAT limit, as youíll have to pay the difference to HMRC.
Once youíve made over £85,000 of sales in the previous 12 months, you have to register for VAT. Itís not – as some mistakenly assume – £85,000 in your financial year, itís in a *calendar* year. This is how many are caught out; theyíre not aware itís on a rolling, 12-month basis. So keep an eye on your takings!
This is also the time to start flagging it up with your accountant, if theyíve not mentioned it to you already.
Tip #2 – Decide Early Which VAT Scheme Youíre Going To Join
For sweeps, there are generally two schemes – Standard Rate and Flat Rate.
On the Standard Rate, you give 20% of your takings to the Government. In return, you can claim VAT back on all purchases where youíve paid VAT (smoke pellets, gloves, stoves, liners, cowls etc).
On the Flat Rate, you only have to give 12% to the government (11% in the first year) and you get to keep the remaining 8% (or again 9% in the first year).
This sounds better than Standard Rate, but hereís the catch – you can only claim back the VAT on capital assets of £2,000 or more, so things like vans, pressure testers, more expensive CCTV inspection kit and so on.
Under this scheme, you canít claim back for smaller items which fall under the £2,000 mark. Nor can you claim back materials/goods you sell onto customers because, regardless of the cost, they are not assets.
Tip #3 – Decide On Your Pricing Strategy
This is the part which usually worries tradespeople the most – how will VAT impact on customers?
Are you going to pass on the full VAT cost or try to absorb it in some way?
At Mr Soot, we decided early on that we would pass on the full VAT cost. So that meant going from £70 for a standard sweep to £85.
Moreover, because we knew that we were heading towards the VAT limit anyway, we decided to raise prices in advance.
This was for a few of reasons. Firstly, we knew weíd have to do it anyway within the next few months, and secondly it meant we would get there in time for silly season, as I didnít want to be messing around with prices in peak season. This would have been confusing for both us and the customer.
But thirdly it also meant, for a short while, we were able to receive the full benefit of a price rise, which we could then use to invest in a much improved booking service for customers.
Tip #4 – Get a Separate Account For VAT
Once youíre VAT registered, youíre in the odd position of having money in the bank which is no longer yours – it belongs to the taxman. So each month, youíd be extremely wise to move, depending on which scheme you decide, either 12% or 20% out of your account and into a separate savings account.
Otherwise you can end up with a massive VAT bill every quarter and no means with which to pay. And the last thing you want is for those lovely folk at HMRC to be on your case…
But thirdly it also meant, for a short while, we were able to receive the full benefit of a price rise, which we could then use to invest in a much improved booking service for customers.
Tip # 5 – Remember, VAT Can Be A Signal of Success!
Itís easy to approach VAT with a ëglass half emptyí mentality, but being VAT registered can actually be good news.
If youíre managing to hit £85,000 in turnover through sweeping work alone, it can be a sign that you have a thriving business with a good customer base. If contract work is your thing, then being VAT registered definitely can reflect much better on your company as some see it as a sign of enhanced professionalism.
And once youíve signed up, you do actually get used to it and it just becomes another overhead.
My Own Experience:
For me, going VAT registered was a massive factor in my decision to expand the business. I didnít just want to limp across the VAT threshold, I wanted to sprint right over it.
My thinking was that turning over £85,000 or just beyond it would be a bit pointless. So I wanted to at least exceed the threshold by a fair margin, just so it felt like it was worth the extra admin etc.
But I couldnít do this solely by myself. So I trained a sweep, Peter, to boost appointment availability, and hired an Office Manager Sam, with a book-keeping background to keep tabs on admin and bookings.
All this has freed up my time to start working ëoní the business more. My role is changing and recognising that is important.
Weíve now expanded our geographical areas in the North West, have started undertaking commercial work nationally and are now planning future growth.
Itís been a whirlwind year which has well and truly flown by.
So yes, VAT can be daunting, and you will need to reach out for professional advice and guidance.
But with the right mindset, it can also be a springboard to take your business to a completely different level…
David is the owner of Mr Soot Chimney Sweep, in the North West of England. He can be contacted via www.mr-soot.com or by emailing david@mr-soot.com
