Today I took on a new client. They telephoned last week wondering what to do as they had just gone over the VAT threshold. They were nervous about what that entailed and concerned they wouldn't know what to do. I spent some time talking them through being VAT registered, keeping accurate records and the advantages of moving to accounting software from spreadsheets. They wanted time to think about what I had said as well as the cost of working with us, but the following day said they would like us to take on their bookkeeping and VAT returns.
Cost is always significant to a small business but it needs to be assessed in terms of your own knowledge against the experience and knowledge of someone who does that job all the time. And of course a comparison needs to be made with others who can do the same but possibly cheaper. Ideally the decision should be made based on who you feel you can work with and who you feel you can ask questions of without being made to feel uncomfortable.
So today I met my new client. It is important to me to put a face to a name because it makes the business relationship so much better. I helped them to register for VAT and told them what to expect from HMRC in due course. I then set them up on Xero, connected it to their bank and within a few seconds was able to show them the bank transactions from the start of their financial year and how these would be reconciled.
Tomorrow, I will set up Hubdoc and send them the link to forward all their purchase invoices and receipts, as well as their sales invoices, so I can bring their accounts up to date in preparation for their first VAT return.
I showed them how they could raise their sales invoices on Xero and send them directly to the customer and told them also that they could do this through an app on their phone. I explained how different income streams can be and should be recorded separately when raising their invoice and how to recharge their costs now they would be VAT registered. I also made the suggestion that they should put away into a separate business savings account 20% of the monies received every time a customer pays. Its a good way to start to ensure that there is enough money to pay the VAT bill and once the bill is paid there is likely to be some left over to save towards a new piece of equipment or perhaps to take some additional drawings.
I also asked them to look out invoices for goods which they have bought since they have been in business which they still own as I will be able to claim back the VAT on those as well as any services they have purchased in the last six months. That was a welcome surprise for them! Being VAT registered is not all negative!
Registering a business for VAT, claiming VAT on earlier purchases, and helping a client to understand what they need to do differently now they are VAT registered, whilst not a daily occurrence, is something I have done many, many times over the years. Setting a business up with Xero and helping them to use it for their sales invoicing I do quite frequently and it is great to see business owners take control and have more understanding of their finances once they do this.
I am looking forward to working with this new client, as I do with all new clients. Each client is unique. They have a different business and different needs and I enjoy every new challenge and being able to help them.
If you are nervous about becoming VAT registered, don't be! Get some help and there will be nothing to worry about except managing your growing business!