Never had any problems in that regards, not as start-up nor now - firmly settled.
Don't forget banks etc are in business to make money, they will look at many other things than just LTD or not LTD.
Self employed, Pro/cons of reg as Ltd company
- Thread starter PrenticeBoyofDerry
- Start date
Never had any problems in that regards, not as start-up nor now - firmly settled.
Don't forget banks etc are in business to make money, they will look at many other things than just LTD or not LTD.
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So by including petrol the VAT liabilty has been reduced from £8.33 to £6.66. So now incorporate all the other overheads he can claim the VAT back on, and that amount is reduced further still.
I appreciate that there are many scenarios, but I still don't see that VAT registration is always that much of a burden.
I appreciate that there are many scenarios, but I still don't see that VAT registration is always that much of a burden.
Glad to see I'm not the only one doubting the "burden"
WYL - the advice being given is right - you can set up a limited company with £1 share - and liability is limited to the company, not the director's themselves. Therefore, assuming no personal guarantee, and no assets of the company upon start up, it is very difficult to get a loan or overdraft, because the loan is not underwritten by anything.
The bigger the initial share capital, the better, but even with, say, £10,000 share capital - banks know that this can disappear quickly, in particular, given that the first set of accounts do not need to be produced for 18 months - even the £10k initial share capital might be spent by the company without realising any assets or earning any income, and so in the event of a failure, the banks cannot recover their loan.
It is usual therefore for a bank to want to see significant successful trading history with accounts filed at Companies House, and for you to bank with them for some time before they will provide credit. Otherwise they may provide a loan to the company if you offer some guarantee (for example they might accept a personal guarantee if you own and have equity in your house). Essentially, this means underwriting the loss of the company, which should only be done with careful consideration.
The other point on a limited company is that for a paltry sum, you can obtain the Shareholders (£1) , Director's Addresses (£1) , and Latest Accounts (£1) from Companies House of any UK limited company - Anyone doing business with a limited company can also see whether the company accounts are overdue and when the firm was incorporated.
For £1, one can see the assets, profit carried into the balance sheet, and cash at the bank at the date of the accounts of any UK company.
A limited company is not for everyone, and certainly it will create barriers when requiring a loan.
The bigger the initial share capital, the better, but even with, say, £10,000 share capital - banks know that this can disappear quickly, in particular, given that the first set of accounts do not need to be produced for 18 months - even the £10k initial share capital might be spent by the company without realising any assets or earning any income, and so in the event of a failure, the banks cannot recover their loan.
It is usual therefore for a bank to want to see significant successful trading history with accounts filed at Companies House, and for you to bank with them for some time before they will provide credit. Otherwise they may provide a loan to the company if you offer some guarantee (for example they might accept a personal guarantee if you own and have equity in your house). Essentially, this means underwriting the loss of the company, which should only be done with careful consideration.
The other point on a limited company is that for a paltry sum, you can obtain the Shareholders (£1) , Director's Addresses (£1) , and Latest Accounts (£1) from Companies House of any UK limited company - Anyone doing business with a limited company can also see whether the company accounts are overdue and when the firm was incorporated.
For £1, one can see the assets, profit carried into the balance sheet, and cash at the bank at the date of the accounts of any UK company.
A limited company is not for everyone, and certainly it will create barriers when requiring a loan.
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Same barriers for self-employed traders, as many of my contacts having gone that route tell me.
The liability is to the shareholders, not the directors in fact. Liable to the amount of shares paid for. In many small businesses of course director(s) and shareholder are the same. Don't overestimate the seemingly "lack of liability" here. This article "Limitation of Limited Liability" shows a few pointers in this regards
As for the Directors Addresses, most now will show the registered office address only.
The liability is to the shareholders, not the directors in fact. Liable to the amount of shares paid for. In many small businesses of course director(s) and shareholder are the same. Don't overestimate the seemingly "lack of liability" here. This article "Limitation of Limited Liability" shows a few pointers in this regards
As for the Directors Addresses, most now will show the registered office address only.
I am not sure if you read my post - if you make a PROFIT it is better FINANCIALLY NOT being VAT registered. The difference is only smaller because of the "made-up" numbers - no-one is going to make £40 a year profit.
"Expertgasman" neatly explained this in his post - I have tried to explain it clearly in my post, but for some reason you don't seem to understand it. But I won't try to explain it again after this post - I hope other people that are interested in the difference that didn't previously know, now understand. It's not rocket science.
Suppose you want to start a business, think of a number of the amount of money you wish to "make" in a year - trying to keep it simple, that's how much you bring in as income in the year less all of your outgoings - that's your costs like petrol, buying stuff for your clients, nails, expandable foam, ...., PVA, wallboard, kitchen units, copper pipe, solder, ..... , T&G flooring, ......, 2.5mm T&E, ... etc.
What's your number £10k, £25k, £60k, £75k?
Now take that number and multiply by 0.83. That is the amount you pay the VAT man, and that's also how much better off you'd be if you weren't VAT registered.
So the more tax HMRC will charge you on earnings. They'll get you one way or the other, be it by PAYE/NIC, VAT or corporation tax.
The burden you make from it is solely based on the VAT tax part in the so-called profit, not on other taxes HMRC will come and claim from you.
Correct, and at last! I was looking at the VAT difference between the two. If you want to include Corporation tax, as an example, we can do that too.
If Corporation Tax is 21%, then LoadsaMoney doesn't have to pay CT on the VAT he has paid to HMCE - so in essence NOW, including CT, he loses out by 0.1316 (that's 1-0.21) x (1-0.83) x his "profit" (term profit used loosely).
So, if you wish to consider Corporation Tax, a VAT registered company has to pay extra tax equating to 0.1316 times the "profit"
So, let's say they both make £40k profit, LoadsMoney pays an extra £5,264 tax.
But that was the whole point in your early post: Newboy makes more profit - because of the VAT issue. Newboy will pay more corporation tax over his higher profit.
Don't change the rules now
But that was the whole point in your early post: Newboy makes more profit - because of the VAT issue. Newboy will pay more corporation tax over his higher profit. Don't change the rules now
Actually you are being deliberately obtuse, and it is clear that however hard you try you cannot prove your point as you continue to think it is better being VAT registered for financial reasons - keep your head in the sand.
The first para of my original posts says :
"VAT does exactly what is says - it's a Value Added Tax - if you "add value" aka make profit - your pay tax on it."
The last para of my original posts says :
"So if your firm makes a profit in the year you'll lose out."
The second to last para in my last post read :
"So, if you wish to consider Corporation Tax, a VAT registered company has to pay extra tax equating to 0.1316 times the "profit"
Read this paragraph very carefully. This is simple broad terms shows you and everyone else how much extra tax a VAT registered company has to pay EXTRA (that's over AND above) a NON VAT registered company AFTER Corporation tax. If you wish to come up and show me with some NUMBERS how a VAT registered person will be better off FINANCIALLY than a NON VAT registered person when they make a profit during the year, then I'm all ears. Otherwise I won't bother responding to your obstructive and pointless posts.
It's very simple - keep quiet, or provide an example, any example - with numbers, any numbers, that show the VAT registered business or individual being better off financially by being registered.
Bet you can't:
1. keep quite.
2. provide the numbers.
NO NUMBERS = NO RESPONSE FROM ME
hooray
So, no numbers. The discussion is not really about numbers, it's about common business practise, rules & regulations.
VAT "burden" is the difference between VAT paid (input taxes) and VAT received (output tax). VAT registered businesses are the unpaid tax-collectors. You don't pay VAT over your profit, you pay the difference between the two VAT types. As limited company you pay corporation tax over your profits, as self-employed trader you pay tax over your earnings.
There are pros and cons of being VAT registered - and if your business is doing well you'll have no choice in this. A simplistic painted example only tells half the story.
Is your business more B2B then voluntary VAT registration works as a commercial benefit, if your business is more B2C and you have to compete on price only (which is a completely different story we won't go into now) until you reach the VAT threshold you could be at a disadvantage if you voluntary register for VAT, but the same applies for your competitor. If you charge the VAT burden to your customers, and why not, they pay VAT everywhere else - even in DIY-sheds - there's a benefit of being VAT registered.
In the end, you - with help of your accountant - are the only one who can/must decide if you register for VAT way before you reach the VAT threshold - or think you will reach it soon. No one - not him or me - can or should decide that for you.
Same goes for being self-employed or Ltd., pros & cons. A proper accountant would be the best person to advise you on this.
So, no numbers. The discussion is not really about numbers, it's about common business practise, rules & regulations.
VAT "burden" is the difference between VAT paid (input taxes) and VAT received (output tax). VAT registered businesses are the unpaid tax-collectors. You don't pay VAT over your profit, you pay the difference between the two VAT types. As limited company you pay corporation tax over your profits, as self-employed trader you pay tax over your earnings.
There are pros and cons of being VAT registered - and if your business is doing well you'll have no choice in this. A simplistic painted example only tells half the story.
Is your business more B2B then voluntary VAT registration works as a commercial benefit, if your business is more B2C and you have to compete on price only (which is a completely different story we won't go into now) until you reach the VAT threshold you could be at a disadvantage if you voluntary register for VAT, but the same applies for your competitor. If you charge the VAT burden to your customers, and why not, they pay VAT everywhere else - even in DIY-sheds - there's a benefit of being VAT registered.
In the end, you - with help of your accountant - are the only one who can/must decide if you register for VAT way before you reach the VAT threshold - or think you will reach it soon. No one - not him or me - can or should decide that for you.
Same goes for being self-employed or Ltd., pros & cons. A proper accountant would be the best person to advise you on this.
Look FACT FACT FACT.
You would be unable to get a bank loan finance etc for a new small Ltd company
I will guarantee it.
You would be unable to get a bank loan finance etc for a new small Ltd company
I will guarantee it.
E
expertgasman
WoodYouLike";p="1954408 said:hooray
So, no numbers. The discussion is not really about numbers, it's about common business practise, rules & regulations.
No. it's numbers
VAT "burden" is the difference between VAT paid (input taxes) and VAT received (output tax). VAT registered businesses are the unpaid tax-collectors. You don't pay VAT over your profit, you pay the difference between the two VAT types.
Absolutely correct
As limited company you pay corporation tax over your profits, as self-employed trader you pay tax over your earnings.
Again, true
There are pros and cons of being VAT registered
The only "pro" is if you dealprimarily with other VAT registered business
- and if your business is doing well you'll have no choice in this.
True
Is your business more B2B then voluntary VAT registration works as a commercial benefit,
True - IF the other business are VAT registered
if your business is more B2C and you have to compete on price only (which is a completely different story we won't go into now) until you reach the VAT threshold you could be at a disadvantage if you voluntary register for VAT, but the same applies for your competitor.
ONLY if he also voluntarily registers - which he would be loony to do so, unless he is working for VAT reg. businesses
If you charge the VAT burden to your customers, and why not, they pay VAT everywhere else - even in DIY-sheds - there's a benefit of being VAT registered.
And their is the rub. Your clients will HAVE to pay VAT. So either you charge more or earn less than you would if you weren't registered. It is all very well being a fantastic plumber, but you have to get the job first to prove it!
WYL, are you VAT registered?
Dizz, I am sorry that I am too stupid to understand your original example. I have found that the recent replies with less numbers and more words match my level of intelligence far better.
If you are VAT registered you will earn less, but not necessarily 20% less, because you can claim back the VAT on overheads.
If you are VAT registered you will earn less, but not necessarily 20% less, because you can claim back the VAT on overheads.
Sorry, people are going to think I'm trolling, but I'm genuinely not. Here's a scenario;
Non-VAT wants to earn £100k a year. To do this he's going to need to spend £200k on materials and overheads. He therefore needs to charge his customers £300k.
VAT will also have to spend £200k on materials and overheads but can claim VAT on these outgoings, meaning he has incurred a cost of £160k.
If he also charges his customers £300k he will earn £140k in the year. He'll have to pay VAT on this but will still end up with £112k.
So where does this example fall down? I'm guessing it's because I'm doing the calculation backwards, and taking off the materials first, then allowing for the VAT on the remainder.
Non-VAT wants to earn £100k a year. To do this he's going to need to spend £200k on materials and overheads. He therefore needs to charge his customers £300k.
VAT will also have to spend £200k on materials and overheads but can claim VAT on these outgoings, meaning he has incurred a cost of £160k.
If he also charges his customers £300k he will earn £140k in the year. He'll have to pay VAT on this but will still end up with £112k.
So where does this example fall down? I'm guessing it's because I'm doing the calculation backwards, and taking off the materials first, then allowing for the VAT on the remainder.
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