When DrivenByQ Ltd incorporated (in 2007), it seemed a good idea
to register for VAT (Value Added Tax). Although our turnover did not exceed the registration threshold at the time (of £86k per annum), we registered anyway and used the simplified VAT system known as the Flat Rate Scheme. We charged VAT to
account customers but could not reclaim VAT on purchases.
The upshot of not reclaiming VAT was retaining a
good portion of the VAT collected on the invoices. Over time it was quite a nice revenue
which the business would not otherwise have accessed. It generated around 8.5% extra
revenue on the turnover. The scheme worked great until April 2017 when the
rules were updated.
The UK Government made a change to tackle ‘aggressive abuse’
known as the limited cost trader scheme. This required a business to spend more
than 2% of its turnover on goods to qualify for the same rate of VAT retention.
For DrivenByQ the only way this was possible was to move our vehicles inside
the business and claim the fuel as goods (something only a private hire company
can do).
The issue here was that the vehicles were previously owned
by ourselves as sub-contractors. Therefore moving the vehicles in to the
business would also require us to be employees. After some detraction, we
finally decided to move the cars and ourselves as owners inside the business.
This required a payroll and a pension scheme to be setup along with salaries.
Just as it began to work smoothly, a competitor went in to
liquidation and we acquired a new customer spending over £50k on account. This pushed
the turnover above the flat rate threshold (£193k) and meant the scheme could
no longer be utilised. On one hand it was frustrating but on the other, it generated
enough revenue to place a deposit on a brand new Mercedes. We managed to claim the
VAT back too.
