If you have been following my content for a while you will have seen me talking about “taking up space” and not being afraid to be “big” in our lives. Oddly enough, the concept of standing in our power and not staying “small” is relevant to crossing the VAT threshold and managing that as business owners. How so? Read on…
Last year my fabulous accountant Caroline Boardman informed me that I would soon be reaching the threshold for VAT. Once your business turnover reaches a certain level you have to register for VAT, and regularly pay that money across to the government as part of your business accounting. Caroline had mentioned this previously and it felt amazing to have reached that level with my business, which I started in October 2018.
Yet when I mentioned this to other people I was met with cries of “you need a new accountant”! and “isn’t there a way you can get around it?” The general feeling seemed to be that VAT registration was to be avoided at all costs, and was definitely not something to celebrate.
So in this post I wanted to outline how straightforward VAT registration has been for me, why it has been so straightforward, and then some of the reasons it seems to be challenging for others. My hope is that this post will help you to feel confident about that next stage in your business, and to feel able to take up that space as a business owner and a provider of services to your clients.
The process for me was straightforward for the following reasons:
- I have an accountant who keeps in regular contact with me, oversees the financial side of my business and provides support rather than “just” an annual tax return. No, this is not ridiculously expensive – there are some cracking accountants out there and if you do not have one I highly recommend finding yourself this level of service.
- I have steadily increased my prices each year that I have been in business, so a change in what they pay to me would not come as a surprise or shock to my clients.
- I manage my cash flow using the Profit First method which means that I was already putting money aside every month to cover my tax liabilities.
- Caroline completed the simple VAT registration process for me with HMRC, I received a VAT number from HMRC and then once the date of registration and the number were added to my FreeAgent accounting software, VAT was automatically added to my sales invoices and calculated on expenses too from the registration date.
- With Caroline’s help I was able to plan for the change in advance and give my clients some options.
How did I give my clients some options? Well those who are already VAT registered themselves did not need any options as they will be able to claim back the VAT they pay to me. However, those of my clients who are not VAT registered were given the option of receiving an annual invoice for the services from Clear Day in advance of my VAT registration.
Combined with no increase in our hourly rate for VA and social media support, this means that many of my clients will not notice any increase in their payments for quite some time.
So what about the impact on me, rather than my clients? The impact has been as follows:
- I pay my accountant a little more every month to cover the extra bookkeeping that is required.
- At the end of each month, when I divide up my income via Profit First, I simply look at my accounting software to see how much VAT I have charged out that month, and then move that amount into a separate “pot” for VAT, ready to be paid across to the government at the end of every quarter.
- VAT can be claimed on pre-registration expenses for 6 months on services and 4 years on assets, so I may even get some money back from the “VAT man”!
That’s it. Simple. VAT is now added to my invoices, VAT is now put aside to be paid to the government, VAT will be paid to the government. I have not lost any clients, I have not lost any money, and my business is on track to grow even more.
So why do so many people fear the VAT? I guess it is because they do not feel comfortable with their clients being asked to pay more money, with admitting that they have reached a certain level of turnover, or with tracking their business finances closely enough to make it painless.
If this describes you then please do reach out for support. Your accountant can assist you with the practicalities, and I can coach you through the money mindset fears that come up when you think about tracking income, staying organised and adding VAT to your invoices.
You do not have to keep your business small. You can take up space and stand tall and proud, celebrating your business growth and having your customers celebrate that with you.
Helen Calvert
March 2022