PAYE person starting small new business- tax issues

H

Hounddog

Guest
Hello all,
I am starting a small part time self employed selling business and am wondering about the merits of employing an accountant. Turnover will be less than 10 k. I am fairly familar with general tax rules as I am already submitting self employed rental income returns with a basic income / expenditure sheet.
Is it worthwhile registering for vat ? employing an accountant ?.. etc
 
Certainly not worthwhile registering for vat with a projected turnover of less than 10k.

In regards to an accountant as you are already submitting the rental income returns with income/expenditure then you should just apply the same principal for doing those accounts to your self employed accounts.

There are plenty of examples of income and expenditure accounts to be found around the net. If you are stuck i can email you a copy if you pm me.

In your position the only need for an accountant that i can see is
(1) if your business will grow year on year (ie rapid growth)
(2) if the banks need to see your accounts (again depends on your future plans)
(3) you don't have sufficient time by which to prepare and file the accounts yourself.

The procedure will be the same with your self employed income as it is with your rental income. it is submitted on your tax return in the Self employed income section.

good luck with the business and hope i have helped a little
 
Hi ,
Thanks johnnybegood for those comments.
Your sentiments I generally agree with. One more question . I'm spending a couple grand on computer equipment eg pc, camera, webcam,broadband, etc. This is not exclusively for business use- some of this will be used for home purposes. I know the revenue part-allow such expenditure - is there a general rule of thumb- eg 2/3 business, 1/3 home ?
 
Hi,
the decision to register for VAT should be dictated by the amount of VAT you might be able to reclaim rather than dismissing it purely on the basis of having a low turnover.

Regarding the decision of getting an accountant, it's about weighing up the costs versus benefit. If the benefit of having a good accountant (the emphasis being on getting a good one!) means less time spent on admin and lower tax bills because of good advice then it's worth paying an accountant. If the cost of the accountant exceeds the value of the time/tax savings then don't use an accountant!!!

I am an accountant who specialises in sole traders & one-man companies, I'd be happy to talk to you about your situation, let me know if you want to chat about it
 
podowd said:
Hi,
the decision to register for VAT should be dictated by the amount of VAT you might be able to reclaim rather than dismissing it purely on the basis of having a low turnover.
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This doesn't make sense for such a small business as that mentioned above. The VAT code prohibits a business from making a "profit" from voluntarily registering for VAT - for example if a trader registers for VAT & claims back a refund of €x00 or €x,000 on VAT on purchases, technically they cannot deregister until and unless they pay at least that sum in VAT on sales. If they do deregister or cease trading in the meantime then the net VAT refund is repayable to the exchequer on demand.

I'm frankly very surprised that a practising accountant would not know this.

podowd said:
Regarding the decision of getting an accountant, it's about weighing up the costs versus benefit. If the benefit of having a good accountant (the emphasis being on getting a good one!) means less time spent on admin and lower tax bills because of good advice then it's worth paying an accountant. If the cost of the accountant exceeds the value of the time/tax savings then don't use an accountant!!!
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Not having an accountant means that you run the risk of over- or under-paying tax, and/or getting yourself mixed up in unnecessary red-tape, if you misread or misinterpret an issue such as VAT registration.
 
I'm afraid you haven't got your facts right Ubiquitous - if you are engaged in a supply of taxable services and your turnover does not exceed the registration threshold you are fully entitled to register on a voluntary basis in order to reclaim vat incurred on business expenses. The Revenue Guide to VAT for Small Business specifically quotes the example of a business is selling zero rated goods (e.g. food) and states you can still register for VAT in order to reclaim VAT on purchases.

Also, if you have a turnover of 10k per annum you will charge VAT on that so you will pay VAT of 2,100 (assuming your service is taxable at 21%). The only way you would reclaim more than that in VAT is if you had incurred costs of more than 10k plus VAT, in which case you'd be making a loss and you probably wouldn't be in business!
 
podowd said:
- if you are engaged in a supply of taxable services and your turnover does not exceed the registration threshold you are fully entitled to register on a voluntary basis in order to reclaim vat incurred on business expenses.
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Yes...but in a situation where a trader ceases business or wants to deregister from VAT, where the cumulative VAT reclaimed exceeds the cumulative VAT charged on VATable sales, the Revenue do have, and do exercise, the power to demand that the trader refunds the difference to them

This applies in all cases where the trader VOLUNTARILY registers for VAT (ie where turnover is below the applicable threshold) including zero rated sales.

podowd said:
Also, if you have a turnover of 10k per annum you will charge VAT on that so you will pay VAT of 2,100 (assuming your service is taxable at 21%). The only way you would reclaim more than that in VAT is if you had incurred costs of more than 10k plus VAT, in which case you'd be making a loss and you probably wouldn't be in business!
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Most small businesses have significant setup costs (eg investment in equipment etc) which involve VAT outlays. it is not unknown for businesses to make losses in the early years, which will be recouped later if the business survives.
 
Whilst the Revenue do have this power this is used in cases where the trader voluntarily registers for Vat and then wishes to deregister and is trying to be clever about reclaiming VAT on purchases without paying VAT on sales. The Revenue would obviously frown on this and would use their powers to reclaim the VAT credits that have effectively been obtained ona fraudulent basis. If there is a cessation of business in the normal course of events (e.g. lossmaking business) it is very rare for them to seek to reclaim the VAT unless they feel the VAT credits have been have been obtained fraudulently.

Leaving all that aside, the fact remains that if an individual has an anticipated turnover which is below the threshold and will be incurring costs which they could reclaim the VAT element of, then they should consider VAT registration. It is a commercial decision to be made having considered the pros and cons, and not to be avoided because a posting on a website tells them the revenue are going to come after them for any VAT that they reclaim!!!!
 
podowd said:
Whilst the Revenue do have this power this is used in cases where the trader voluntarily registers for Vat and then wishes to deregister and is trying to be clever about reclaiming VAT on purchases without paying VAT on sales. The Revenue would obviously frown on this and would use their powers to reclaim the VAT credits that have effectively been obtained ona fraudulent basis. If there is a cessation of business in the normal course of events (e.g. lossmaking business) it is very rare for them to seek to reclaim the VAT unless they feel the VAT credits have been have been obtained fraudulently.
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Panel 25 (iii) of the TR1 Tax Registration form (part C Registration for VAT) exists solely to identify cases of voluntary VAT registration. There is no assurance that any given trader is, or will be treated by Revenue as being, immune from the relevant statutory provisions arising from an election to register.

I would suggest therefore that it is reckless of you to suggest that the original poster should ignore these provisions, whether they become aware of them from reading "a posting on a website" (in that case if they didn't want feedback from other AAM users, then why did they bother posting here in the first instance?) or elsewhere.
 
If you read my posting correctly you will see that I did not suggest they ignore the provisions at all - I said they should consider the pros and cons of registration and then make a commercial decsion.

In the example of Hounddog, if they have anticiapted net sales of €10k they will pay VAT of €2,100. If they do not expect their VAT on purchases to exceed €2,100 this issue will not arise.

There are other issues to be considered, a more important one being the impact on your customers of being vat registered - are they VAT registered and in a position to reclaim the VAT you charge? if not, the effect of registering for VAT will be to make you 21% more expensive. If they won't accept this increase then the VAT will come out of your 10k, making your nett income 8.2k. This may be more of a deterrent than the Revenue seeking to reclaim your VAT credits.
 
Hello all,

Thanks to everyone for the comments. Re the vat issue over a few years I reckon it will be revenue neutral. It would help my initial cashflow as I coull recoup on the initial equipment outlay. However cashflow is not a worry (unless I get completly carried away ! ) and therefore probably not worthwhile. Would vat registration require an accountant ?

I'm still unsure re the revenue treatment ofitems only partly used for the business. My own feeling is one a reasonable & true division is done it should be ok . Todate when dealing with the revenue that's the way I've done it and seems to work.
Any comments anyone ?
 
hi , great argument!! i am also a practising accountant and if a business has a turnover of circa 10k then it is very unlikely that is it is worthwhile registering for vat.

(1) It is unlikely that they will have high start off costs (ie capital expenditure etc). well i hope not with a €10k turnover.

(2) they will have to charge 21% on their sales and unless there costs are equal to this vat say €2,100 per annum then the business will actual lose out on money.

forget about the rules of the revenue ... look at the particular business in question ...

depends on the clientele (are they vat registered or not? Ie will you have to absorb the vat cost or can you past it on)

will you have large start up costs thus a good vat amount to claim back

do you want the additional workload of dealing with the vat returns.

My advice and its on advice is not to register for vat you will probably pay more vat than you claim back , although this might help you at the start it will damage your cashflow during the year.

Finally in relation to the household bills i advise clients to apportion the bill in a true and fair view. Ie if your electricity bill is €150 bi monthly and you use one room at home for your "office" use then relaistically depending on daytime occupancy and number of rooms you should be able to get a fair figure for this.

same goes for phone, heating, internet etc. Beware if the revenue look into your accounts these are the sort of things they will check.

My one major caveat is DO NOT PUT through a rent charge "for use of office" this can affect your PPR and mean you might have a capital gain liability on part of your home.

Only enter everyday items as appropriate (such as those mentioned above) the revenue are human afterall (YES I KNOW HARD TO BELIEVE) it is perfectly within your right to claim a certain amount of household bills as business expenses if you work form home but don't be lumping in the sky digital bill etc. Be honest to yourself and the revenue wil be fair with you.

Now back to the argument ROUND 4!!!
 
Sorry folks, no argument (certainly no ROUND 4!!!) just healthy discussion :) :)

Slainte, I think Johnnybegood and podowd's recent posts are both spot on in relation to your queries. If you need any further clarification, feel free to ask :)
 
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