At some of my recent client reviews we have discussed how VAT feels like a burden and is putting pressure on cash flow. Clients ask if they should scale back to go under the threshold.
Scale up! That is my answer. If your business is operating profitably and is VAT registered and around the threshold then lets look at ways to make VAT less impactful on your business.
Yes being registered is added admin and however much you may want the threshold to increase, it is not likely to be addressed in the October Statement from Rachel Reeves. So my advice is plan, prepare and push past it!
Firstly VAT administration should be fairly simple now. There are so many software packages for businesses to use that are priced for the small business. For accountancy purposes you need to upload receipts and invoices so there isn't an additional burden in that respect. If you are confident in your VAT rules then the software makes it easy to submit your VAT return. If you are in any way not 100% comfortable with VAT rules, then reach out to your accountant. It will save you time and money in the long run.
The cash flow aspect is a little harder to bear, I understand. However, it should remain in your mind that you are a 'collector' of taxes when it comes to VAT. Your pricing should reflect this and when you think of profit margins you need to think net of VAT. There are several VAT schemes that help businesses who are around the threshold to reduce the VAT. There is the flat rate scheme, cash scheme, and the tour operator margin scheme. Get advice and check you are in the right scheme for your business.
Put the VAT away as it comes in. If you get paid £1.2k from your client, put £200 straight into a separate bank account to build cash funds to pay your VAT. As accountants we can help analyse the VAT and recommend a % to move across each month/week to ensure you can prepare for the VAT quarter bill.
Look at pricing - are you really charging the right price at a net amount and then adding VAT. Speak with your accountant and look into having some pricing analysis sorted.
Push past it! Are you really happy having a business that will only ever turnover £90-£95k? Can you achieve what you want by suppressing your growth? If the idea of growing out past the threshold is a little scary then engage with others who can support your growth, either through networking or looking to use a growth coach. Think about what you want to achieve from your business and use that as your goal, not a threshold that you have no control over! In words of S-Club 7 - Reach for the stars!!!
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