Quizzes & Puzzles2 mins ago
A new business - sorting out tax, vat etc
3 Answers
Hi,
Although I work full time, an opportunity has come up to trade secondhand cars, which my grandfather used to do from home before he died, after he sold a main agent garage he owned.
Thing is, I know nothing about tax and VAT etc.
I will only be selling a few cars - probably 2 a month maximum and making �300-�800 on each. Any money I make will go towards buying better, more expensive cars and will not be taken by me as income. Certainly not for a number of years.
Therefore, can I keep any tax separate from the income tax I pay through my employer ? I don't want to start getting charged emergency tax etc
I'd like to voluntarily register for VAT, because I understand I could claim VAT back on petrol and repairs I may need to do... but then thats a load of paperwork and how do I charge VAT to customers without increasing the price of cars I'm selling.
Finally, if I can just pay a tax on my profit, how much will I have to pay and how do I pay it ?
I know I should probably know these things, but when people have tried to explain it, it sounds very complicated... possibly because they take income from their profit and also have found legitimate ways to maximise the VAT they claim back.
Thanks.
Although I work full time, an opportunity has come up to trade secondhand cars, which my grandfather used to do from home before he died, after he sold a main agent garage he owned.
Thing is, I know nothing about tax and VAT etc.
I will only be selling a few cars - probably 2 a month maximum and making �300-�800 on each. Any money I make will go towards buying better, more expensive cars and will not be taken by me as income. Certainly not for a number of years.
Therefore, can I keep any tax separate from the income tax I pay through my employer ? I don't want to start getting charged emergency tax etc
I'd like to voluntarily register for VAT, because I understand I could claim VAT back on petrol and repairs I may need to do... but then thats a load of paperwork and how do I charge VAT to customers without increasing the price of cars I'm selling.
Finally, if I can just pay a tax on my profit, how much will I have to pay and how do I pay it ?
I know I should probably know these things, but when people have tried to explain it, it sounds very complicated... possibly because they take income from their profit and also have found legitimate ways to maximise the VAT they claim back.
Thanks.
Answers
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You are in a Catch22 on two situations - the ownership of the business and the VAT.
Regarding the business, you either set up a limited company and channel all the expenses/profist through that business, taking whatever you choose in income for yourself, as and when the business can afford it. You pay corporation tax at 21% on the profits of the business, and any income you take out reduces that profit (so reduces the corporation tax) but then you pay PAYE tax and NI on it, as you are an employee of your own business of which you are also a director.
Or you don't do the above and keep records of expenses/income, and declare it to HMRC as self-employed earnings. With the method, each tax year you would have to make a declaration of the income/expenses and pay personal on any profit. Look here for how self-employment and self-employed tax works. http://www.hmrc.gov.uk/selfemployed/
With the VAT, you can register the business (for either a limited company or self-employed) whenever you like, you only have to do what tamborine suggests if your turnover goes over the threshold he quotes. It really depends where you are sourcing the cars from. If you are buying through the trade, they would have (generally) to be charging VAT on the transaction, which you could offset. You could also offset the VAT on other expenses like petrol that you quote. But the downside is that you could have no choice but to charge VAT to your customers.
If you are buying most of your cars from private sources where no VAT is charged to you, it would be pointless registering for VAT on the business as you would have no choice but to charge VAT to your customer still.
Regarding the business, you either set up a limited company and channel all the expenses/profist through that business, taking whatever you choose in income for yourself, as and when the business can afford it. You pay corporation tax at 21% on the profits of the business, and any income you take out reduces that profit (so reduces the corporation tax) but then you pay PAYE tax and NI on it, as you are an employee of your own business of which you are also a director.
Or you don't do the above and keep records of expenses/income, and declare it to HMRC as self-employed earnings. With the method, each tax year you would have to make a declaration of the income/expenses and pay personal on any profit. Look here for how self-employment and self-employed tax works. http://www.hmrc.gov.uk/selfemployed/
With the VAT, you can register the business (for either a limited company or self-employed) whenever you like, you only have to do what tamborine suggests if your turnover goes over the threshold he quotes. It really depends where you are sourcing the cars from. If you are buying through the trade, they would have (generally) to be charging VAT on the transaction, which you could offset. You could also offset the VAT on other expenses like petrol that you quote. But the downside is that you could have no choice but to charge VAT to your customers.
If you are buying most of your cars from private sources where no VAT is charged to you, it would be pointless registering for VAT on the business as you would have no choice but to charge VAT to your customer still.
buildersmate has provided a very comprehensive answer.
Just to add that second hand cars are subject to a margin scheme and not handled like any other goods for VAT purposes. A second hand car dealer, registered for VAT, has to pay VAT on the MARGIN he makes on cars. The cost and selling price are irrelevant as is whether or nto the seller of the cars to you was vat registered himself. If you buy a car from me for �1,000 and sell it to buildersmate for �1,200 you have made a margin of �200 and would pay VAT of �26.09 on a vatable supply of �173.91. The fact that I'm not vat registered is irrelevant. The value of the car is also irrelevant. If the car had been �500 and sold for �1,000 then the margin would be �500, the VAT �65.22 and the vatable supply �434.78.
It's extremely unlikely that selling a handful of cars per annum you'd have to be VAT registered. Whether it's advantageous to be voluntarily registered is a far more difficult question. You really need an accountant to look at the figures properly. I can't believe you are considering entering such a business without already having an accountant so if you haven't got one, get one. If you have got one, speak to him about it.
I'd also add, on a completely unrelated point, it may well be illegal to trade second hand cars from home. And if it isn't actually illegal the local council will almost certainly redefine the premises as business and subject to business rates once they realise it's the case.
Just to add that second hand cars are subject to a margin scheme and not handled like any other goods for VAT purposes. A second hand car dealer, registered for VAT, has to pay VAT on the MARGIN he makes on cars. The cost and selling price are irrelevant as is whether or nto the seller of the cars to you was vat registered himself. If you buy a car from me for �1,000 and sell it to buildersmate for �1,200 you have made a margin of �200 and would pay VAT of �26.09 on a vatable supply of �173.91. The fact that I'm not vat registered is irrelevant. The value of the car is also irrelevant. If the car had been �500 and sold for �1,000 then the margin would be �500, the VAT �65.22 and the vatable supply �434.78.
It's extremely unlikely that selling a handful of cars per annum you'd have to be VAT registered. Whether it's advantageous to be voluntarily registered is a far more difficult question. You really need an accountant to look at the figures properly. I can't believe you are considering entering such a business without already having an accountant so if you haven't got one, get one. If you have got one, speak to him about it.
I'd also add, on a completely unrelated point, it may well be illegal to trade second hand cars from home. And if it isn't actually illegal the local council will almost certainly redefine the premises as business and subject to business rates once they realise it's the case.
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