02 March 2020

Q&A March 2020

Q. I opened a tattoo studio nine months ago and have made sales of £66,000 so far. I’m worried that I will have to register for VAT soon and lose 20% of my income in tax. What can I do?

A. The VAT registration threshold is £85,000, which is the maximum total sales you can make in any 12 month period before you are required to register for VAT. Looking at your current sales pattern, you will exceed the VAT threshold within the next three months.

You could keep your sales total below £85,000, perhaps by taking a break from work or dropping your prices, but we wouldn’t usually advise a thriving new business to take either of these routes. If your sales go over the £85,000 threshold, there is nothing you can do to avoid the need to register for VAT.

You may have considered increasing your prices to compensate, but this again may be inadvisable while you are still growing your business. Fortunately, there are other ways to make savings. You will be able to reclaim VAT on things you buy for your business, such as inks and equipment. You will also be able to reclaim VAT charged on any services you used for your business within the six months up to the VAT registration date. You might be able to claim for some of your setup costs too, as goods purchased in the four years before registration can also be claimed, as long as you still hold those items (as well as invoices and receipts) at the registration date. We’d recommend you seek help with VAT registration from an accountant, to make sure nothing is missed. We’d also offer you a free business health check, to make sure you’re getting the most out of your business.

Q. My mother gave my daughter £5,000 on 1 May 2015. She had not made any other gifts in previous years. Unfortunately my mother passed away on 1 September 2019. How much of the gift she gave to her granddaughter is chargeable to inheritance tax?

A. None of the gift will be liable to inheritance tax. Since your mother did not make any other gifts, the £5,000 gift she made to your daughter will be covered by her inheritance tax annual exemption of £3,000 for 2015/16 plus her unused exemption of £3,000 brought forward from 2014/15.

You should seek advice about your specific circumstances before taking any action. Contact us if you have any questions or, if you would like to sign up to our monthly newsletter, please complete the form below or sign up here.

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