How Do You put Your Materials Through Company

[gryphon]

Apologies if this is is the wrong forum for this. Looking for direction.

Son has been a sole trader a few years now and seems to be doing fine. I did advise on day one to go Ltd Co but he went with some daft accountants advice.

Anyway he seems to have gone above the VAT threshold and is maybe expecting a large VAT bill. He has now decided to go Ltd and has moved accountants.

How do people put the materials for jobs through the company. I think this has been part of the problem of going over the threshold.

 

[Andy™]

everything you buy, get a VAT invoice. give those to accountant along with all your invoices. they'll tell you what to pay to HMRC

 

[binky]

get yourself Quickbooks or the like and it will work out the VAT for you

 

[Murdoch]

Sole trader when starting out is sound advice IMHO.

I’m a sole trader and always keep below the VAT threshold

Now I’m part time it’s even easier

 

[mort2376]

The vat bill will only apply from the point he went over the 85k.

The procedure is still the same as being a sole trader it's just the limited company buying the materials.

The difference is VAT is now shown on invoices and charged on everything.

Example

Materials cost £100 plus vat = £120.

The invoice shows....

Materials @ £120 ( including a 20% markup)

Labour @ 40 for an hour

Sub total = £160
Vat @ 20% = £ 32
Invoice total £ 192

Of that you pay to the vat man £12 as your claiming back the £20 of vat you paid at the wholesalers.

There are different vat systems depending on what works best for you. You can pay as little as 5% on everything I think and this saves working out what you paid and charged, but it's only available upto a certain threshold.

People get very uptight about VAT but it is pretty simple and if your unsure I've always found the tax people really helpful.

They aren't there to try and catch you out or trip you up. However if you do piss them off they can make life very difficult.

 

[apprentice87]

I was vat registered many years ago. I did not bother with "conventional" book keeping at all. Load of MASSIVELY over complicated nonsense.

The ONLY record keeping i did was in a vat record book, In the "output" section i recorded every invoice i issued, the number, the date, how much and to who. All invoices were then kept in a ring binder in date order

The receipts for everything i bought, i numbered these, and recorded them in the "input" part of the book, who from, what for, how much.
All invoices were then kept in a ring binder in date order.

Take one figure from the other, send that to the vat man and the same figures gave you your profit for tax purposes. So simple a 5 year old could do it.

I had a vat inspectors visit too, they looked at the book, picked an invoice and wanted to see it, 5 seconds later there it was, then they picked a reciept from the book and wanted to see it, 5 seconds later, there it was...

Then they did it the other way about, picked a reciept and an invoice and wanted to see the corresponding entries in the book, "there and there" Piss easy..

Only complicated bit was certain things i had bought had different vat rates and then there would be reciepts that did not show the vat, so i had to work it out.

Of course, if you do not keep records and no numbered invoices and all receipts in a black bag, then good luck with that..

john..

 

[Murdoch]

It’s also worth thinking about Making Tax Digital which I think is compulsory for Ltd companies or VAT companies

 

[Steviesparkie]

It’s also worth thinking about Making Tax Digital which I think is compulsory for Ltd companies or VAT companies

Mtd is a requirement.i use sage which is easy to use but costs me £59 a month.

 

[Murdoch]

Mtd is a requirement.i use sage which is easy to use but costs me £59 a month.

Not for sole traders yet

 

[Steviesparkie]

Not for sole traders yet

I meant fot ltd companies

 

[offgridAndy]

We run a Ltd Co. We use an xcel spread sheet upload to file VAT cost £50 per year. Other digital tax upgrades have been delayed. The first mandatory use of digital methods was for Value Added Tax, beginning in April 2019 for many businesses and organisations. Making Tax Digital for Income Tax Self-Assessment has been delayed until 2026.

 

[ExArmy]

I've always been just under the VAT threshold as I don't think I would be as competitive in the domestic area which is mainly what I like. I do some commercial work for VAT companies but in general they are all pricks and just whinge about the price, introduce loads of hoops to jump though and take forever to pay the bills, whereas all the domestic jobs everyone is happy to see me, reasonable to deal with and they pay up when I've done the work, simple.
I am interested in doing more solar jobs but supplying the gear for that is going to put me over straight away so I've not taken the plunge yet, but I was talking with my accountant recently and he said it would be possible to set up a sole trader solar company that's registered for VAT just to do all the solar jobs through. I actually suggested the idea thinking he would tell me straight away that's not allowed but he said it would be ok. the idea being I can buy all the solar equipment and claim the VAT back, and when I sell the job to the customer it's zero rated so theres no VAT to pay on the materials or the labour. wondered if anyone has any experience of that? what would be the costs associated with setting up a VAT reg sole trader outfit, how much work is it to do VAT returns now and when will they make sole traders do MTD?

 

[Andy™]

setting up a company to avoid VAT will end up badly when HMRC look into it

 

[binky]

setting up a company to avoid VAT will end up badly when HMRC look into it

It's a separate company, so should be no issues. Would make your personal tax earnings for the year a bit complicated though. One thing that will definetly happen if he starts up with solar, is the tax office will make enquiries when you make your first claim for tax back. It's the only time the tax office ever took an interest in my business. So if there is any issues, exarmy will soon find out and be corrected .

 

[Murdoch]

MTD for sole traders was going to be April 2024, but it’s been put back to 2026 but I’ll have retired fully before then

 

[mort2376]

So your invoicing your customers 2 invoices. One for materials and one for labour ?

Otherwise your system doesn't work as your solar company would have to sell to your electrical company and include vat. Which means your turnover is still the same.

Unless you only do solar work on the solar company and charge vat on that, but I'm not sure that's allowed.

I know you can't have a domestic company and a industrial electrical company as in the tax eyes they ate the same

 

[Andy™]

another thing that many miss, just because you are VAT registered doesn't mean you are 20% more expensive than those who are not. your only 20% more expensive on your labour only. all the materials you've bought, fuel etc all has had VAT paid, which you (and customer if they were VAT registered) cannot claim back


so, lets say you have a job and you are charing £40. materials cost £50 + VAT. fuel to get to the job was £10+ VAT (obviously alot more costs involved, but again, VAT would be paid on them either way)

not VAT registered will cost £112
VAT registered will cost £100 + VAT, £120. not really all that much difference...

 

[NozSpark]

Having 2 companies doesn’t really work…..
which company is supplying the parts?
which company is supplying the labour?
which company is supplying the transport?
which company is supplying the tools?
which company is supplying the IT?
which company is supplying everything else??

The companies have to be separated,,,, and I don’t know if you can do that as a sole trader providing similar services

 

[binky]

Having 2 companies doesn’t really work…..
which company is supplying the parts?
which company is supplying the labour?
which company is supplying the transport?
which company is supplying the tools?
which company is supplying the IT?
which company is supplying everything else??

The companies have to be separated,,,, and I don’t know if you can do that as a sole trader providing similar services

It can be done, but it's a pain in the neck.

 

[Murdoch]

I asked my accountant about this but strongly advised against it as in his words HMRC could decide it’s just a ruse to avoid tax and slap you with big bills, back dated too