[tommytink]

I’ve been reading some past threads about VAT registration but couldn’t see an answer to what I was searching for!

My other half has said about registering for VAT so we can reclaim the VAT on purchases that we have made so far in setting up our smallholding. We originally said we’d never make a business out of the place but have now decided to give it a try. We’re not doing anything else and who knows, we might make a little bit to pay our bills, which will increase our self sufficiency.

We have run a Ltd company for years, which is in the process of being closed down, so know about record-keeping and have been submitting VAT returns every quarter. I know that VAT changed in April and data now has to be submitted through recognised software. Not sure how simple that will be...?

Anyway, as far as I’ve read there’s no issue with registering for VAT and not making a profit. Obviously at the start there will be more outlay and no income. Both myself and my other half are registered for SA anyway as we have a property we let. But does anyone know, do we need to register as a partnership? What has anyone else done where there are two people involved? I read that if you are a partnership you then do a SA for each person and then the partnership itself? Or can one of us register for VAT as a sole trader? Would that be simpler?

I appreciate the answer will probably be ask an accountant, but just looking for other people’s experiences.

Thank you!

[Womble]

Or can one of us register for VAT as a sole trader?

There will be reasons why that is a good or bad idea for you personally, but that's what we did. I'm the one who does most of the work, so I just registered as a sole trader, with 'farming' as the occupation. VAT registration logically follows on from there.

Anyway, as far as I’ve read there’s no issue with registering for VAT and not making a profit.

That's the bit that interests me at the moment. Originally I thought we might turn a small profit, but as we go into year four, that's still not happened, and I still haven't found a definitive answer as to whether it's ok to stay VAT registered with a business that makes losses long term. I've asked two accountants so far, and neither of them knew. One of them said "Forget the VAT for a minute. You need your head examined full stop!"...... which is of course probably true.

[tommytink]

Because I’m already registered for self assessment I don’t think there’s anything else I’d need to do as I would just fill in the relevant fields on my tax return. However if we did a partnership I’m not so sure as it said the nominated partner would do the partnership return. Obviously any income and outgoing would be split between two instead of all being assigned to one person which would reduce the risk of going over any limits and then having to pay taxes or NI. All I’m looking to do is possibly earn a little bit (which I doubt would cover expenses!) and be able to reclaim the VAT I’ve paid so far on getting things up together, tools etc.

I have read somewhere whilst looking into this about there being a five year period where HMRC will give you the opportunity to make a profit, and if not after that they contact you basically asking why you’re bothering, but I’m not sure whether that’s true.

If you do VAT Womble have you had to get some software to upload your return? We closed down earlier this year so didn’t have to look into it but will do now if we go forward with this. I don’t know why they can’t leave things as they are... 

[doganjo]

VAT and registration as a sole trader for tax (Self assessment) are two different things.

A business registers for VAT

Individual persons register for Self assessment (tax)

Even if you are already registered for self assessment, if your turnover (gross income from the business) is over £85000 in any 12 month period you will need to register for VAT

If you do not have £85000 turnover in 12 months you can still register your business for VAT voluntarily in order to be able to claim input VAT - you would have to charge VAT on any vatable sales, and you would normally be expected to reach break even within 5 years

HTH

[Womble]

I have read somewhere whilst looking into this about there being a five year period where HMRC will give you the opportunity to make a profit, and if not after that they contact you basically asking why you’re bothering, but I’m not sure whether that’s true. 

OK, maybe I can shed some light on this part.

Provided you are going into business with a reasonable expectation of making a profit after a few years, losses in the first five years can be offset against OTHER taxable income (e.g. a regular job). However, after five (consecutive, I think) loss-making years, that offsetting is no longer allowed. You can still offset smallholding losses against the smallholding (e.g. a smallholding loss in year 6 could be offset against a smallholding profit in year 7), just not against other income.

you would normally be expected to reach break even within 5 years

@doganjo , do you have a reference for this? It's something I've as yet been unable to pin down definitively. When we first started out, we did think we'd be breaking even by now, but it hasn't quite happened. We're now in the process of re-appraising to see if we can turn things around, or scale back completely, and obviously being / remaining VAT registered is an important factor in this.

BTW, We use FreeAgent for our accounts, which submits VAT returns at the click of a button. I believe there are more changes afoot soon, but TBH that's right at the bottom of a long list of things to worry about. I don't imagine it will be too difficult though, especially if you set up to do that right from the start.

[doganjo]

Quote from: doganjo on April 11, 2019, 10:24:14 pm
you would normally be expected to reach break even within 5 years

@doganjo , do you have a reference for this? It's something I've as yet been unable to pin down definitively. When we first started out, we did think we'd be breaking even by now, but it hasn't quite happened. We're now in the process of re-appraising to see if we can turn things around, or scale back completely, and obviously being / remaining VAT registered is an important factor in this.

No, sorry, been out of the game for some years but it was always recognised during the 40 years I was working in accounting that if you didn't make a profit (or break even, and show an upward trend over the 5 years) in Year 6 you'd receive a questionnaire from HMRC (HMIT as it was then )

[oor wullie]

I haven't looked into it too deeply but my understanding (hope?)  is that the "making tax digital" requirement to use software to keep records and submit VAT returns was only compulsory for those over the VAT threshold.  Those of us under the threshold who have voluntarily registered for Vat are allowed to continue using the existing system (which is pretty simple).

Having said that I fully expect they will make it compulsory at some time in the future at which point I will probably go out of business!

[doganjo]

I've just been looking at MTD (VAT and accounting systems) for my cousin's partner who is about to start a new business and asked if he should voluntarily register for VAT.

The advantage of voluntary registration is that you can reclaim the VAT you pay on goods or services you buy that have VAT attached; and that you could have a perceived kudos if trading with large companies

But disadvantages are that you would pay VAT on any sales of your own goods and services unless they were non vatable; and if trading with businesses of roughly your own size or even slightly bigger there would not necessarily be such perceived kudos, nor with individuals.

A new disadvantage, if registering, is MTD (Making Tax Digital) which requires specialised software - not in itself a big issue as that is available fairly cheaply. (I found 123 accounting at £40 a year)

Another disadvantage is that once you register and are on MTD it's for the life of the business as far as I can gather.

I've recommended that he only registers when required - when his turnover in any 12 month period reaches £85000 - quarterly £21250

Hope that helps
Annie

[Rosemary]

The advantage for a smallholder depends on what you are selling - meat, eggs etc are zero VAT so generally, you'll be anet reclaimer. Useful in the early years.
It's a bloody minefield though - fleece raw is zero rated; knitting yarn is vatable at 20%; apples are zero, apple juice 20%.

[SallyintNorth]

And accommodation is vatable, so if you plan to do B&B, it’s highly unlikely you’d be a net reclaimer.

[doganjo]

The point I am making is that if you decide from this month onwards that it is worthwhile voluntarily registering you will now have to use MTD (Making Tax Digital), and that in itself takes effort - buying new software, learning how to use it, entering the information each month or quarter etc - and no escape route.

If the savings are not considerable, personally I wonder if it is worth it. 

My advice is wait till you are grossing £85K a year 

[oor wullie]

The point I am making is that if you decide from this month onwards that it is worthwhile voluntarily registering you will now have to use MTD (Making Tax Digital), and that in itself takes effort - buying new software, learning how to use it, entering the information each month or quarter etc - and no escape route.

If the savings are not considerable, personally I wonder if it is worth it. 

My advice is wait till you are grossing £85K a year 

VAT Notice 700/22.  Para 3.1.  "you do not need to sign up for making tax digital if..... Your taxable turnover is below the VAT registration threshold"

You can still voluntarily register fir VAT and avoid MTD until either your turnover goes above the threshold or the gov changes the rules.

[doganjo]

Thanks Wullie, my so called expert has misinformed me    30 lashes for him next time I see him 

I should have looked it up myself - Google found me the full text -

3.1 Who is exempt from Making Tax Digital
HMRC expect that most customers will be able to meet the legal obligations of Making Tax Digital, but accept that it may not be possible for a small number of customers to do so.

You will not have to follow the rules for Making Tax Digital if HMRC is satisfied that either:

it’s not reasonably practicable for you to use digital tools to keep your business records or submit your VAT Returns because of age, disability, remoteness of location or for any other reason
you or your business are subject to an insolvency procedure
your business is run entirely by practising members of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records
You do not need to sign up for Making Tax Digital or apply for an exemption if either:

you’re already exempt from filing VAT Returns online
your taxable turnover is below the VAT registration threshold