Topic: Avoiding VAT by reducing sales

Hello

I have a limited company that provides consultancy services. The turnover (invoices for services) is just tipping over the VAT limit now, but is likely to hover around £85K to £90K in the foreseeable future.

I cannot increase the price of my services by 20% for VAT as that would make me uncompetitive, plus I have a lot of existing clients on a fixed fee without VAT contract. So, if I have to register for VAT, it will effectively lower the income to the business as I will just have to charge a lower fee before adding VAT to it and swallow the cost myself rather than passing it on.

Instead im thinking of reducing growth and sales to keep the turnover under £85k. Is this an issue with HMRC.

Alternatively im thinking of creating a new business under separate company and make it distinct from my current company. Will this work.

Many thanks indeed if anyone can explain what I should/have to do?

Re: Avoiding VAT by reducing sales

Firstly f your taxable turnover exceeds £85k in any 12 month period to need to register for VAT. If you have already breached this then it is to late.

Most businesses restricted their turnover to remain outside the VAT system because they expected VAT registration to negatively affect their profit, or their competitiveness if the cost was passed on to their customers, with businesses with a higher proportion of business-to-consumer sales and low input costs worried about a substantial financial impact.

However i read about some academic research that found that restricting business activity often involved considerable effort and monitoring of turnover, and turning down work could impact on a business’ reputation, hence may not always be the best option.

As you may or may not be aware, the government are looking to reduce the VAT threshold anyway, so using my crystal ball, you will required to register in the near future regardless in all likelihood.

Creating one company for each day of the week will obviously not work as HMRC will look at this as artifical separation of business -see here: [url]http://vatforum.co.uk/viewtopic.php?id=111[/url]