VAT registration can be a bit overwhelming but knowing its practicalities and planning out things well can give you the peace of mind and relief to take the next steps necessary for your business growth and success.
In this episode, I share my top tips on planning to become VAT registered, the logistics around being VAT registered, the mindset shifts, and the realities around what it means to be VAT registered as a business owner.
00:04 Episode Intro
00:28 Podcast Intro
05:16 When should you register for VAT?
06:44 Setting yourself up as a limited company
07:50 Getting help from an accountant
09:17 VAT allowance reset when transitioning into a limited company
10:55 Claiming your VAT if you invoiced anyone who is VAT registered
11:43 How Ruth planned for becoming VAT registered
13:04 Identifying who your VAT-registered clients, suppliers, and outgoings are
15:03 How being VAT registered shifted Ruth’s mindset
16:06 What to remind ourselves about paying taxes
16:52 Not holding yourself up and taking more actions in your business
17:27 Planning for a price increase and giving notice to clients
18:44 Transparency with business coaches and owners about your running costs
Hi, I’m Ruth, a business coach specializing in helping freelancers and business owners adjust their mindset and their marketing so they can get fully booked with clients they LOVE to work with. I’ve helped hundreds of self-employed women achieve the time and money freedom they craved.
I’ve started this podcast because when I first went all in and left the corporate world to be a freelancer, I was grateful for any work that came my way. After over 20 years of freelancing and working for other people, I started to realize I’d created a glass ceiling for myself.
In 2017, I finally started listening to that voice that had been telling me for a long time that I wasn’t doing what I loved and fulfilling my true potential. It took a critical illness to give me that wake-up call. I don’t want the same to happen to you.
You can expect practical advice, inspiring stories, and a lot of aha moments as we uncover and kick to the curb all the obstacles you have been putting in your way.
I’m on a mission to inspire women to start and play bigger in business.
Free Masterclass: https://www.ruthgilbey.com/the-sold-out-solution-2022
Hello and welcome back to the inspiring women in business podcast. In today's episode, I share my top tips are planning to become VAT registered. I'm going to go through the logistics around being VAT registered how you plan for being VAT registered, the mindset shifts, and the realities around what it actually means to be vat registered as a business owner.
Hello, and welcome to the inspiring women in business podcast. My name is Ruth Gilbey, and I'm a business and marketing coach. I'm on a mission to inspire women to start and play bigger in business. Now I started this podcast because when I first went all in and left the corporate world to be a freelancer, I was just grateful for any work that came my way. After over 20 years of freelancing and working for other people, I started to realize I created a glass ceiling with myself. It was in 2017 When I finally started listening to that voice that had been telling me for a long time that I wasn't doing what I loved, and I wasn't fulfilling my true potential. It took a critical illness to give me that wake-up call. And I don't want the same thing to happen to you. You can expect practical advice interviews, inspiring stories, and a lot of aha moments as we uncover and kick to the curb all the obstacles you've been putting in your way.
Hi there. Welcome back to the inspiring women in business podcast. I'm Ruth Gilbey. And today's episode is all about the things that will help you plan for becoming VAT registered. And I'm sharing my own experience of becoming VAT registered in 2022. So today's episode is all about how I became VAT registered in 2022. And I just really wanted to share the lessons I'd learned, the wobbles I'd had, how I plan for it, what I didn't plan for the lessons that I learned, et cetera. And all the kind of mindset shifts that I had to go through when with it because it's quite a massive up level for quite a few business owners and I wanted to share that with you.
Now, this is the final solo episode that I am recording for 2022. And a lot of the time people do episodes where they recap 2022 and but this is an episode that because I'm asked about it a lot by a lot of my clients, it's like a frequently asked question. And it's also because I went searching for so much information about becoming VAT registered, I thought this was more of a useful episode for you. And it also does it's a massive thing that happened to me in 2022, so it's a bit of a recap as well. So I'm recording this as I say it's the last episode of 2022. Can't believe it, can't quite believe where it's gone. And for some of you who are following me on Instagram, you may have been following that I took most of November off because I had a massive operation. So I am three weeks post-op whilst I'm actually recording this so I'm going to keep it nice and short and to the point because I'm still resting still only doing a couple of hours of work a week on another episode that I want to actually record as well as about how I kept running my business how I kept making money in my business, whilst taking most of November off and lessons I learned from running my business in maintenance mode. So that's an episode that will be coming in 2023.
Anyway, back to today's episode. So as of August this year, I became VAT registered as I reached that milestone of earning or not earning actually still that's a bit of a hangover from being self-employed from reaching that 85k turnover or revenue in the last in 2022. The truth is that actually I reached this point in 2021. But I'm going to explain more about that in this episode and why there was a delay in me actually signing up for or registering, to be VAT registered. So in this episode, as always, I wanted to share the lessons learned the VAT wobbles that I had was a massive uplevel for me, and I won't deny it. I'm going to be really honest about that. And how I planned and didn't plan for being registered for VAT massive caveat at the beginning right at the beginning of this episode is that I am not an accountant, please check with your accountant about what's relevant for you and what I am talking about in my business is relevant to my business. I have a business in the UK and this is what's relevant for me. This is my story. This is how I planned for it. But please do speak to your accountant and I will be sort of sharing some of the advice I got from my accountant as well.
So first things first. So I wanted to be a practical episode for you as well. And there is a bit of confusion over the logistics and what you need to plan for when you're reaching that threshold of becoming VAT registered. So I just wanted to run through the practicalities. First of all, you need to register for VAT if your turnover is 85k or more in any rolling 12 months. So it's not just in a financial year, it's any rolling 12 months. So if your turnover is generally around the 7k per month mark, you're heading towards this because seven times 12 is at four, but also watch out as well if you fluctuate between five and 10, or three and 12k months as well, which some people do depending on their business model. So it's just keeping an eye on that.
The other thing to mention as well as you don't have to wait until you are at the 85k turnover mark to actually register to be VAT registered, you can sort of do a bit more planning, and you can take a bit more control of the situation. And you can actually register at any time, you don't have to have hit that mark. And there are pros and cons to that which we'll talk about in a minute. Many businesses actually register for VAT much earlier on in their business, I've seen people do it actually when they are just starting their business, they do it right up front, they just register for VAT, because there is perceived credibility around being VAT registered as well. Or it might just suit their business better that they have clients that are all VAT registered when they're working with suppliers that are VAT registered it just makes sense to do that. And again, I'm gonna go into a little bit more detail about that.
So up until last year, I was a sole trader and my accountant advised me that you can't be a sole trader and VAT registered or if you are it can get quite messy. So best practices are to set yourself up as a limited company and set yourself up as a limited company. Get yourself VAT registered either before or when you're close to hitting that 85k mark. And also not in this order. Set yourself up as a limited company, get yourself an accountant, and get VAT registered. So it's a little bit more complex than being a sole trader or often self-employed. What I did is I knew I was heading for it. So actually the year before my accountant helped me and I set up a dormant limited company that was just sat there, dormant ready for me to move over to so I wasn't having to sort of do lots of things at the same time and we weren't scrambling around. So that's one of my pieces of advice for you. If you're thinking it's coming and you're a sole trader, one of the things that you can do is you can set yourself up as a dormant limited company.
If a server as I've already mentioned, once you are a limited company, the best practice is to have an accountant. I mean, I've said this all the time, even if you're self-employed, you're a sole trader, I really do believe it's one of the first things to outsource and get help with. I did my tax return once, you can do it. I mean, if you've got your client, if you've got an aptitude for it if you're good, you keep up to date with things, but I just feel like I mean I used to when I was first, first went freelancing, I paid anything between 250 and 500 pounds a year for an accountant that might have changed, that price might have changed for being a freelancer. And they literally just did my tax return and it was actually worth the peace of mind and checking everything than being up to date on all the laws and what could be an expense and what couldn't be. So I always say it's, I think it's worth it for the cover that you get in the experience that they've got as well if you are DIY and yet and you don't have an accountant, just bear in mind that when you become a limited company when you become VAT registered it gets more complex and when it gets a little it gets more complex when you're a limited company there are different things to file there are different ways of looking at the business the accounts are a bit different and subsequently usually accountants charge more if you're a limited company. So as I say best practice is to have an accountant and definitely get an accountant if you're moving over to being a limited company.
One thing that I didn't know is when you move from being a sole trader freelance self-employed However, you cannot boss yourself to being a limited company. The VAT allowance actually resets itself so that's why I hit over 85k turnover in 2021 but because I moved last year to be a limited company went back to zero because you're freelancing is a separate entity to you know a limited company is not you as a freelancer is a separate kind of entity and they're different things so your sole trader freelancing income doesn't kind of combine with the limited company income. Again check this with your accountant but this is my understanding, definitely, definitely always check this with an accountant. But that's what happens. So it kind of reset. So it gives you a longer period of time before you start having to add 20% VAT onto your invoices and sales, which leads me to that's what it's all about. That's what happens. And I guess this is why a lot of the time people spend worrying about becoming VAT registered because suddenly you have to add 20% VAT to everything that you invoice and charge for so sales invoice anything unless your business is exempt unless you have a different kind of percentage that you charge on VAT, they're there. They're listed on gov.UK's website, what kind of businesses are exempt and when they pay different amounts, but mine is like the standard 20% to all my sales, all my invoices, and that's no exemptions, but there are, it's definitely worth checking that.
The other thing is, and this is where the confusion happens, you can claim back VAT and offset it against your VAT bill if anyone you've invoiced is VAT registered. So for some businesses, if all your clients are VAT registered, when you become VAT registered and you just add on the 20%, they're going to be okay with that because they can claim it back. And if you've got a load a lot of contractors or the expenses in your business are UK businesses, and they invoice you and they add VAT you can offset it. So it can you know, that's a thing to actually when you're actually planning to just consider that as well. And I'll talk about that a little bit more. So that leads me to how I planned to become VAT registered. And what happened? What kind of things did I do when I was hitting the VAT threshold? Because this question has been asked quite a lot by clients of mine who are heading towards that as well. So first of all, I factored in 20% in my prices before I hit the threshold, so it wasn't a massive, you know, a surprise to me, or people that were working with me. As I said earlier, I set up a dormant limited company and then moved over to being a limited company in 2021. So that I wasn't trying to do that at the same time as becoming VAT registered.
The other thing that I just wanted to sort of say was my business, a lot of my clients aren't VAT registered. So me just adding on 20% wouldn't be as simple for them as them saying, Oh, that's okay, I can claim that back because they're not VAT registered. And also, a lot of my suppliers, a lot of the software I use, a lot of the contractors I use are not either they're not VAT registered, or a lot of the software, etc, is actually not in the UK. So I can't claim or offset the VAT. So I'm in a bit of a situation where I'm not benefiting from that. So as I say, it wasn't as straightforward for me as just adding it on and saying Here you go, and also offsetting it, because of a lot of the expenses and outgoings but I'll talk through what I did around that.
So then the first thing, one of the first things I did was I listed all my suppliers, and all my outgoings and worked out which ones were VAT registered as you can claim that the VAT if you if you're both registered. So I sort of sat and looked at that. And it was a good chance for me to audit what I'm using in my business, and remind myself what subscriptions are coming up with. So that's always a good thing. When I talk about this in the online business collective where we do the online business audits, it's always good to have an awareness about the things that you're investing thing those subscriptions that might renew annually just looking at things again. I audited what I needed in my business to factor in the extra cost as well. You know, thinking about what I actually need and matching it with my goals, looking at what I already had, that's a big thing, reminding myself what you've already got and what you actually need, putting some things on hold, etc or upgrading some things to annual if I knew that I needed them. The next thing that I did was I planned to tell any clients that it affected because some were VAT registered I'd say it's about 70% aren't and 30% are so those that were already VAT registered it was a sort of simpler process. I then update my website to have an all my checkout pages invoices account system with all my VAT registration details my accountant did do all the kinds of VAT returns and did all the paperwork for me and I was saying that and on I pay every quarter. I pay a VAT Bill and I had a lot of conversations with my accountant to plan for this so that there wasn't a massive massive panic they were always saying or heading towards it and it was literally sort of 10 months in from it resetting that we were needing to talk about me becoming VAT registered. Yes.
So the next things is, the next thing that I want to talk to you about is how it affected my mindset. I mean, this has been a difficult year for lots of people. So I was just thinking, I really don't want this thing that's going on another course. So, I had to do a big mindset check-in, to be honest, if you're just over the 85k threshold, and you find yourself having to pay 20% tax on everything, and not necessarily being able to offset this, which was the situation I'm in, it's a big change and a big dent in your profits. So again, mindset shifts, my accountant was really good about this, he got me through it, he gets me thinking differently about my business, he doesn't just think about the monetary value of it, he kind of reminded me, you know, Ruth, you've got a business that makes money and you had August off with your family. He reminded me that I was able to have surgery in November and take most of November off and kind of rest and recuperate from that I had people who could help me run my business, so I could actually rest and recuperate. It got me thinking differently about the success of my business.
So the other thing that I reminded myself about is that to remind myself that paying taxes is a good thing. I'm paying my taxes. So we get to live in a country where there's a health service, whether it's an infrastructure, you know, schools, there are public schools, there's an infrastructure that needs money. I know, we could debate this point a lot, I know the world and the UK isn't in a great place. But I still really believe that paying your taxes is the right thing to do. And the more I also do believe, and again, this is a very personal opinion, but I do believe the more you earn, the more you should pay, again, personal opinion. But that's my belief. And you know, more than ever, you know, we need to be paying our taxes. So that's something that I reminded myself of what I'm actually doing, and why I'm doing this.
The other thing that I needed to really think about was considering if I was actually holding myself back by thinking I don't want to go over 85k Because this could have been keeping me small. And actually, the relief when I actually did register, and I started to actually put things in place, I just felt like it was a massive up level. And perhaps that I had been like keeping myself, you know, not taking certain actions in my business because I was like, oh, maybe I'll just stay under. And it's all starting to kind of level out and kind of make more sense now. And things are sort of starting to fit into place.
The next thing that I did was I planned a price increase to accommodate the 20% I was overdue a price increase anyway, as I'm sure all of you who are listening to this are as well. So for certain things, it was an easy, not an easy, but it was a light, an email to clients saying I had a kind of email template that I use that I modified and kind of personalized for them to let them know what was happening gave them lots of notice actually came from like at least three months notice to let them know it was coming. I added 20% to my one-to-one coaching package and idea kind of campaign around that giving people the opportunity to get the price without VAT for a bit longer. Even though I was paying the VAT for my other things like my membership and my courses, I actually absorbed it and kept the price the same. But I'd factored in the 20% when I was pricing it when I was actually packaging those things as well. When I was packaging, the online business collective when I was packaging, the blueprint and the revenue generator, and my other program as well. And any others that are coming up as well. I just kind of was aware of the VAT was actually coming. So that's my learnings. That's how I planned for it. That's the logistics around it. I hope you found that helpful.
The last couple of things that I just really wanted to say was that I think there needs to be more transparency with business coaches and more transparency with business owners about the running costs of your business. A big reality check of having a business is that usually to grow, scale or make money is that you need to invest in your business. You need time, money, and expertise. It isn't just you when you're starting to kind of level up and grow or scale your business or you're trying to bring more revenue into your business. Whatever you're trying to do in your business. You doing it all doesn't help your growth. So I've always thought being VAT registered can give you a perceived credibility, particularly if you're a business coach helping people grow successful businesses. A few years back when I guess it was about 2018, when I moved from doing marketing for people to becoming a marketing and business coach. So we're real shift in people becoming a limited company and becoming fat registered as a real milestone and something to aspire to. And I'm not sure whether this is because there was this rise in people talking about 5-10K months was a lot of marketing around 5-10K months with people, you know, I don't think that resonates with people as much anymore. And people spouting about six and seven-figure incomes and talking about these strategies. And the thing is if you're claiming these things, and then you're in, you're a UK business coach, and you're not VAT registered, it doesn't really add up. So I know, I know, I got a little bit caught up in this marketing myself actually quite a lot when I first went into kind of business and marketing coaching. I was I felt, really, I was very aware of that noise around these kinds of financial milestones, but just be careful aspiring to revenue promises that don't give you the real data behind them. Because I think I thought, you know, even with all my business experience, I was like, Are they talking about that you're taking home five or 10k? And therefore, when you're running and growing your business, you don't, you don't everything that you that's a sale, it's not your salary. And I think it's really important to remember that it isn't just you contracting, it isn't just you delivering service because you have running costs and income. And as I say, income that comes into your business is not your salary.
I guess what I'm trying to say here is that to reach these financial milestones, unless you have a very high day rate, or a business model that doesn't need a lot of running costs, and do not think that you will be taking home the 5-10K every month, don't you know, understand. And also the reason why I'm saying this is not to put down on everything. But it's also to remind yourself that you aren't doing anything wrong. If you don't take all that you earn home, because you're actually you've got to think kind of longer-term of what you're actually doing or investing into your business. And one of the things I did a little bit of research around this, is that a 20% profit margin in your business is seen as a good profit.
Okay, so those are my final words on becoming VAT registered. And the reality around hitting that milestone as wonderful as it is, yes, I am celebrating it. But it's just a sale just another day in business really, for me. And one of the things whatever stage you're right, one of the resources that I wanted to share with you, and I will link to this in the show notes is a free resource I've got and it's called, Set your secret base right. Now, whether you are a sole trader, whether you are our limited company, it's a workbook that gets you to think about the running costs of your business, your taxes, your VAT, all those different things, how much you want to actually work how much holiday you want to take in your business. So it gets you to think about not just. I think this is the thing, it might be a bit of a hangover from a lot of us working in the corporate world or being freelancers that we set a rate that we think is the rate that we will be paid as a salary when you have to, you have to really consider all the running costs in your business.
So I hope this episode has been really helpful for you in getting you to think about planning for it and what you might be doing that's holding you back from reaching that milestone and becoming VAT registered. And also, as I check out the set your secret base rate, which is really good. I mean, I remember the first time I was actually creating it, I was thinking, I wish I'd had this like 12 years ago to help me understand because it gets you it's a mindset shift. Yes, but also like me, it's a very practical tool as well that gets you thinking about all the running costs of your business so you can go in with your eyes open and really understand when you're setting your prices, and what that actually means.
Thanks for listening to the inspiring women in business podcast. I hope you found this episode helpful. If you did, I would love it if you would leave me a review. Also, I would love to connect with you on Instagram. That's where I hang out most of the time. I'm @Ruth_Gilbey. I'll put a link in the show notes for you as well come and connect with me. Tell me about your business. And also tell me what you'd like to hear next on the podcast. And lastly, go and check out the business building hub on my website. There you can find more amazing free resources to help you take the next step in your business. And you can also find out other ways that you could work with me. I'll see you soon