Tool hire businesses and VAT
You will have to register for VAT if your taxable sales are likely to be above the current VAT threshold. You will then have to charge VAT on the services you provide - this is known as 'output tax'. You will be able to reclaim any VAT you pay on purchases - this is known as 'input tax'. The hire of plant without an operator is standard rated. However, if plant is supplied with an operator/driver, this may sometimes be zero rated if it is supplied in the course of zero rated construction work - for example new house building.
Every quarter you will pay HM Revenue & Customs (HMRC) the difference between:
- all the output tax you have charged
- all the input tax you have paid on your purchases
Nearly all businesses have to pay their VAT bill electronically - for example by direct debit or online banking. HMRC allows you some time at the end of each quarter before you have to pay the VAT due. So, for example, the VAT due on sales made in months one, two and three would be paid at the end of month four. Your VAT return will show your payment deadline date.
Businesses that are having trouble making their VAT payments, or are worried that future payments will cause them problems, can ask for help from the HMRC Business Payment Support Service. If your business needs this financial assistance to tide it over, HMRC will look at your situation and discuss temporary options that could help out. These could include letting you make payments over a longer period and waiving late payment surcharges. To discuss payment problems with HMRC you can call the Business Payment Support Service Helpline on 0300 200 3835.
Contact the HMRC VAT Helpline on 0300 200 3700 if you need further guidance. You can also download helpful leaflets including VAT Notice 700/1, Should I be Registered for VAT? and VAT Notice 708, Buildings and Construction from the Gov.uk website.
You will have estimated your monthly sales income. Now you should decide whether you must register for VAT. If so estimate the approximate amount of VAT that you will have to pay every quarter.
Making Tax Digital (MTD) for VAT
Under HMRC's Making Tax Digital initiative, VAT-registered businesses with taxable turnover above the VAT threshold must keep records digitally and use special software to submit their VAT returns. You can find out more about MTD on the Gov.uk website.
Alternative flat rate scheme
You might be interested in an optional flat rate scheme (FRS) for eligible small businesses. Under this scheme you continue to issue tax invoices to VAT registered customers, but the VAT payable every quarter is calculated as a percentage of your VAT-inclusive turnover. You apply the appropriate flat rate percentage for your type of business. However, this scheme cannot be used with the retail schemes, the margin scheme for secondhand goods or the cash accounting scheme. You can find full details of the FRS, who can use it, and the flat rate percentages in VAT Notice 733, Flat rate scheme for small businesses. It will help you to decide whether or not the scheme is suitable for you.
Price marking and VAT
If you only deal with trade and business customers then you may well want to show VAT-exclusive prices. Many of your business customers will be VAT registered and will be able to claim back any VAT they pay on things like hire charges. However, if you also deal with private customers at the same outlet then the law says you need to show VAT-inclusive prices. This goes for your website, catalogue and advertisements too if they are aimed at private as well as trade customers. As most tool hire shops have at least some private customers, the best policy may be to display both prices clearly.