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bigduckontax, Accountant
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I need some help. I currently have a foot health clinic

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Hi. I need some help. I currently have a foot health clinic which I've run as a sole trader for 5 years. I'm now looking to buy another clinic from a friend who's looking to retire. The new clinic is up and running with 2 treatment bays and has about 6 part-time self-employed practitioners working there (of which I'm one).
My intention is to set up the new clinic as a Ltd. company to keep it separate from my current business. The problem I have is VAT thresholds. All of the practitioners are self employed and do their own accounts. No one is VAT registered as they fall below the thresholds (that's all fine). The way it works is that the clinic takes a 33% cut of all the treatments which is effectively a commission for the chair rental, reception services and supply of customers etc. So simply put a treatment is about £30.00, the practitioner gets £20 and the clinic gets £10. There are approx. 100 treatments per week. Where the problem lays is that customers pay the clinic at reception, often by card etc so all the monies pass through the clinic. I have been advised by my accountant that this would then all show as turnover and then the practitioners should invoice the clinic for their bit. However, doing this makes the clinic turnover look artificially high (£156k) and therefore pushes it over the VAT threshold when the reality is that it's only £52k and therefore should by well below the threshold. The current owner has always split the commission out and has never shown the full turnover, but I've been advised this is dangerous if not done properly.
If I become VAT registered there are very little purchases to claim back VAT the other end so in effect I'll be the only person paying 20% of the profit straight to the VAT man and that makes the whole business unworkable not leaving enough for the running costs and certainly not enough to make it a worthwhile business to buy.
My accountant is struggling to find a way round it, but I'm sure there must be as it doesn't make sense. I'm only collecting the money on behalf of the practitioners, it's not my money as such.
I want to set the new company up un the correct way from the start so need some advice as how to do this. My initial thoughts was to set it up as an 'agency' as it's effectively a vehicle for putting customers and suppliers together for a commission.... but my accountant doesn't think that would work.
Any ideas to get round my problem? How do I set the company up to keep the turnover down?
Regards
***** *****
Submitted: 9 months ago.
Category: Tax
Customer: replied 9 months ago.
I had better mention (although it seems obvious) putting the prices up 20% to cover the extra costs won't work as it would price me out of the market.
Expert:  bigduckontax replied 9 months ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

Before I can fully address the position please note the following extract from VAT Notice 701/57:

'professionals registered under the Health Professions Order 2001 - these professionals are, arts therapists, biomedical scientists, chiropodists/podiatrists, clinical scientists, dieticians, hearing aid dispensers, occupational therapists, operating department practitioners, orthoptists, paramedics, physiotherapists, practitioner psychologists, prosthetists and orthotists, radiographers, and speech and language therapists, but will also include any medical care professionals added to the Order at a future date'

Please advise if you are one of the professionals so registered.

Customer: replied 9 months ago.
The answer is no. Most of the practitioners (including myself) are FHPs (Foot Health Practitioners) which is a new qualification bought in after they made chiropody a protected title. They do the same basic treatments but the big difference is they're not state registered.
However, my dad IS a state registered chiropodist and therefore VAT exempt. We first thought that if he was a director of the new LTD company, we could use his title to make the whole company VAT expemt but reading through various bits it appears that he as the qualified person would need to be there full time & have a pre-treatment consultation with every patient every time.... So clearly that isn't going to work which is a real shame as VAT exemption would be perfect.
Expert:  bigduckontax replied 9 months ago.

I see Ian, you have got the message, were you registered under the Order your activities would be exempt and you would not have to bother about VAT registration at all.

Unfortunately your accountant is correct. VAT is a turnover tax not a tax on profits. Thus if you sell over 83K of services in any one year, even if it is for some other person, you breach the turnover level, must register and charge VAT on your gross sales. The fact that from that turnover you are paying other suppliers is an irrelevance. There is a comprehensive summary of the position here:

http://www.vatexchange.co.uk/VAT-agents-and-principal-nov-2014

The only way around this which I can see would be for the individual practitioners to bill clients direct. They would then pass you an element of the fee paid whuch would reduce your turnover, presumably to below the threshold.

I am so sorry to have to rain on your parade.

Customer: replied 9 months ago.
That's a bit of a blow..... I was sure there'd be some work around. Looks like I'm dead in the water.
How does it work for hair dressers? I know the rental on the chair is vatable (if they've gone over the threshold) but I can't seem to find anywhere where it says if the turnover generated from that chair is included in the turnover of the salon. Some sights give the impression that the salon only accounts for the profit even though we all know the majority of transactions will be on the salons card machine?? Are they doing it wrong or is this an avenue I ought to look down and copy there setup?
Expert:  bigduckontax replied 9 months ago.

Have a look here regarding the appropriate treatment for VAT in respect of rented barbers' chairs:

http://www.accountingweb.co.uk/any-answers/rent-a-chair-self-employed-barbers-and-vat

You will see that the route I suggested to reduce your turnover to below the threshold is similar in approach and might work. Otherwise, as you surmise, you could be up the creek without a paddle.

bigduckontax, Accountant
Category: Tax
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Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 9 months ago.

Thank you for your support.

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