Becoming a Motor Trader - Help needed please

[PeteMoore]

I would suggest the Ltd Company route. You don't have to use an accountant to set one up, plenty of places online do it very cheap. I am an accountant am I am using them to set up mine. They can also set up your business account.

Main benefits of a Ltd company are obviously limited liability. You as a person will not be responsible for any debts the company 'may' occur.

Also if worked right the Ltd company route works best for tax reasons.

You need an accountant to sign off your returns at the end of each year.

You need someone other than yourself to act as a secretary. Unless you make up names but address them to yourself.

Limited Liability? Yes that is the idea of a Ltd company, but when he is working with very little overheads, and obviously dealing with items which always hold some value, he has little to be concerned about unless he starts pulling 60k loans out of his ass.

I have been both a LTD and a sole proprietor and the ltd company isn't worth the hassle unless you are required to do so by contract.

My mother has successfully run one of europea largest classic car parts dealership for over 25 years and is yet to even come close to being advised to go LTD or LLP

If you're an accountant, why aren't you just filling the forms in and doing the job yourself instead of through an online company. The reason I did mine through an accountant is that it means I only go through the ordeal once. Almost everyone who tries to do everything by themselves to save money ends up doing it 3 or 4 times before it's completed by which point they have no desire to continue.

For me it was £250 well spent, it allowed me the job that was paying triple that on a weekly basis. I closed the LtD company so I didn't have to go through the accounts every year as well as my own tax return.

Remember as a ltd company you will have to register for PAYE so you can pay yourself from the company, you then get hit with company tax on the overal income of the company, an the further 23% income tax when you pay yourself.

Sod. That. Sole trader an work your arse off.

 

[Barnsy9]

You need an accountant to sign off your returns at the end of each year.

You need someone other than yourself to act as a secretary. Unless you make up names but address them to yourself.

Limited Liability? Yes that is the idea of a Ltd company, but when he is working with very little overheads, and obviously dealing with items which always hold some value, he has little to be concerned about unless he starts pulling 60k loans out of his ass.

I have been both a LTD and a sole proprietor and the ltd company isn't worth the hassle unless you are required to do so by contract.

My mother has successfully run one of europea largest classic car parts dealership for over 25 years and is yet to even come close to being advised to go LTD or LLP

If you're an accountant, why aren't you just filling the forms in and doing the job yourself instead of through an online company. The reason I did mine through an accountant is that it means I only go through the ordeal once. Almost everyone who tries to do everything by themselves to save money ends up doing it 3 or 4 times before it's completed by which point they have no desire to continue.

For me it was £250 well spent, it allowed me the job that was paying triple that on a weekly basis. I closed the LtD company so I didn't have to go through the accounts every year as well as my own tax return.

Remember as a ltd company you will have to register for PAYE so you can pay yourself from the company, you then get hit with company tax on the overal income of the company, an the further 23% income tax when you pay yourself.

Sod. That. Sole trader an work your arse off.

Anyone can be your secretary, sister, girlfriend, mother. Plus if you 'pay' them it's all fully tax deductible, just like your £250 accountants bill was.

I set up my first Ltd company and to be honest it's easier to pay someone £30 to save the hassle.

As a Director of your own Ltd company you can decide what you pay yourself.

You could technically pay yourself £7475 a year which means you won't pay any income tax at all because this is your tax free allowance.

You then make up the rest of you wages as a 'dividend' being a shareholder and this is only taxed at 10% instead of the 20% tax rate.

There are more tax deductible items you can write off as a Ltd company as well.

Though I agree a sole trader is so much easier and a lot less hassle.

 

[scubbay]

vat registration is on turnover not on profit. You will not be much of a trader if you dont turn 70k. nine k is alrite in repairs but you are assessed on turnover not profit.

 

[PeteMoore]

I do see what your saying dude,

However, I want to run a business, not spend all day every day doing the math to allow me to dodge the tax man. That time to me is better spent getting the money in in the first place.

Worry about where the money goes once you have it, and worry about how to get rid of it when you need to, if you are fortunate enough to be in a position to do so.

Main reason most businesses fail these days is through over complication of everything on the "business" side instead of just going and doing what they do best, worry about the "money" side at a later date.

 

[scubbay]

I will offer a scenaio:
as a trader you buy 3 Golfs
Golf 1 is £2000
Golf 2 is £2000
Golf 3 is £2000
All 3 cars need a service and valet before resale totalling 3x £150 from a non vat registered mechanic
Golf 1 is now £2150
Golf 2 is now £2150
Golf 3 is now £2150
Golf 1 is sold for £2500
Golf 2 is sold for £2800
Golf 3 is sold for £2200

Golf 1 runs fine within the 3 month warranty period and requires no further expense.
Golf 2 is the same.
Golf 3 has a clutch failure and costs £300 to repair from a non vat registered mechanic.
( Forgetting income tax usually 30% from a high profit/turnover enviroment) calculate the vat payable if that were your only sales that quarter.?
Show the profit after vat and before tax using your very handy system?

 

[PeteMoore]

For me?

I may have time on my hands, but im not that bored.

Mine is all based on labour, therefore my time, i can value my time at whatever i deem necessary and of course job dependant.

I understand completely where you are coming from, and I am by no means suggesting it is easy, but it is much easier to do so as a sole trader than it is to then get into the hassle of accounting for a LTD company aswell. Which was the point i was making, not by any means undermining how much work actually has to go into business accounts.

10 minutes each sunday and I can have that weeks books done, simply by using my invoices and receipts handed to me. Everything then gets put into a simple spreadsheet which gets printed out with totals at the end of the year. Job done and 52 times the information that the Inland Revenue actually want.

They then send the bill, and i hand over the money already put to one side.

 

[sacodetoro]

Anyone can be your secretary, sister, girlfriend, mother. Plus if you 'pay' them it's all fully tax deductible, just like your £250 accountants bill was.

I set up my first Ltd company and to be honest it's easier to pay someone £30 to save the hassle.

As a Director of your own Ltd company you can decide what you pay yourself.

You could technically pay yourself £7475 a year which means you won't pay any income tax at all because this is your tax free allowance.

You then make up the rest of you wages as a 'dividend' being a shareholder and this is only taxed at 10% instead of the 20% tax rate.

There are more tax deductible items you can write off as a Ltd company as well.

Though I agree a sole trader is so much easier and a lot less hassle.

The company gets taxed also, dividends paid to shareholders are not a way of getting a tax break, is that not the reason all the large accountancy firms are partnerships?

The company would get taxed 21% on its profits(tax is calculated before dividends) and then he would get taxed an additional 10% so he would end up paying around 28% on the profits and if his salary and dividends exceed about 40k then he gets pushed into a higher tax rate aswell.

Otherwise all these sole traders who get their accountants to do their books would all be ltd companies but they are not.

It's only a tax saving if he doesn't take the money out of the company and manipulates the books the right way.

All of which is completely pointless for a guy wanting to sell a few motors.

The limited liability won't really matter considering he won't be getting or needing credit from anyone.

Do as ninek says, self assessment and save your self the 2/300 quid in accountants fees

 

[Jibb90]

do i need to pay VAT on my profits? do i need to pay vat on parts etc?

what way does this work and how does it affect me?

 

[sacodetoro]

do i need to pay VAT on my profits? do i need to pay vat on parts etc?

what way does this work and how does it affect me?

Basically,

As you are now you aren't VAT registered which means you pay VAT on your purchases when its charged but you DON'T charge VAT on anything you sell, depending on where you buy your stock(somewhere that doesnt charge VAT e.g. private sale) this is better for you as there will be no VAT incorporated into your price.

Once your turnover reaches 70k in the tax year you must register for VAT, Turnover of 70k would be say selling 7 cars at 10k...
You only need to register if you are going to go over the threshold in the tax year.

If you register for VAT, you will have to charge VAT in either of these ways;

You buy a car with VAT on it, you reclaim the VAT on your cost and then add VAT of 20% onto your selling price e.g.

Buy a car for £5k + £1k vat, reclaim the £1k VAT, sell the car for £10k plus VAT of £2k so buyer pays £12k, very few dealers use this method I think.

OR

You use the VAT margin scheme where you charge VAT on your profit so,

You buy a car for £5k and flog it for £6k, you pay VAT on the £1k profit you make ONLY, so you owe the VAT man £200. When doing this you don't show VAT on your invoices or receipt as it can't be claimed back by anyone(I think) Also if you pay £5k for a car and that £5k includes VAT, you CAN'T reclaim that VAT when using the margin scheme.
You can still claim VAT back on all your bills/petrol/parts etc.

Hope that helps

Rich

 

[Jibb90]

thanks very much mate! great help

edit - so i don't have to worry about VAT unless i'm VAT reg'd basically?

just income tax?

 

[sacodetoro]

thanks very much mate! great help

edit - so i don't have to worry about VAT unless i'm VAT reg'd basically?

just income tax?

No worries, yes thats right just income tax and national insurance.

 

[Coog]

Bumping this up because I've a quick question:

Do you need to register with DVANI in order to be able to fill in the trader section on the V5 and send that off? Reason why I ask is that I buy and sell the odd car in my spare time and generally when I buy something I just register it to my name. The problem with that is that it adds a new keeper to the book and also looks a bit dodgy when you're selling it because it looks like you've held onto the car for a few days before selling (which to a new seller screams 'problem').

Might be handier to just fill in the trader bit instead?

Anyone know?

 

[PeteMoore]

Just fill it in dude, never had a problem in the past.

Great thread to dig up too

 

[Coog]

Dead on. Yep, good thread. Some excellent advice too Pete (I'm was an accountant a few years back - not a very good one mind you )

 

[Daz500]

I'd like to bump this thread again .... as a trader, how do you "protect" yourself from warranty claims within 3 months? As good measure, I would put 12months MOT on a car and be clear about what mechanically, if anything, needs done. Given the 3 month warranty period, it would be very easy to trash a gearbox or for a mechanical fault to occur through misuse. Is it just a case of taking the hit on the repair costs or is it possible to buy/sell a warranty?

 

[Nicky]

I'd like to bump this thread again .... as a trader, how do you "protect" yourself from warranty claims within 3 months? As good measure, I would put 12months MOT on a car and be clear about what mechanically, if anything, needs done. Given the 3 month warranty period, it would be very easy to trash a gearbox or for a mechanical fault to occur through misuse. Is it just a case of taking the hit on the repair costs or is it possible to buy/sell a warranty?

Buy a 3 month warranty from the likes of Warranty Wise, AutoGard etc... That basically takes any and all onus off you in the event of expensive bills, and covers you legally. I have done quite a bit of work for a few dealers recently that done just that, and they'd have been met with over £1000 of a bill in a few cases, which far exceeded the cost of their 3 month warranty premium.

 

[big_pete]

You have no obligation to offer a warranty, the only onus there is in reference to the sale of goods act. Make sure the car is as good as can be and leave it at that. I offer 3 months on more expensive cars as a gesture of good will. Cheaper stuff you simply cant do it.

Sale of goods states a car must be fit for purpose within a reasonable period of time in relation to the age/mileage/price of the vehicle. So a car at £500 isn't going to have the same expectancy of one at £2000 for example

 

[Jason]

Has to be fit for purpose for 6 months not 3

 

[Wild Thing]

Put a £150 in a seperate account for every vehicle you sell and tell any warranty company that rings you trying to get your business to go sit and rotate. Those boyos are slippy fookers. Jmho.

 

[mthompo]

Has to be fit for purpose for 6 months not 3

Was just about to say that its 6 months

 

[Daz500]

...So a car at £500 isn't going to have the same expectancy of one at £2000 for example

The problem is that Joe public expect a cheap second hand car to be in as good condition as when it left the factory. There are just so many deluded people about with unrealistic expectations. Selling a car with a fresh MOT helps with proving the car was in reasonable condition in the first place.