I had a client come to me, she was growing her business, initially it was cost effective to be a sole trader due to income levels, but as time went by the Busines began to make more profits so we made the decision to incorporate the business to a limited company. After nineteen more months the business was about to hit the VAT threshold so as a limited company she would have had to register for VAT, but little did she know, she supplied some exempt supplies which meant that if she reverted back to a sole trader she would not have to register for VAT.
It wasn’t in her best interests to be registered for VAT as her clients were individuals and both other businesses who could reclaim the VAT. If she went VAT registered she would have lost a large number of clients due to the large increase in sales cost.
Reverting back to sole trader saved her around £15,000 in clients based on an activity based costing analysis done in-house.
Saving £15,000 – on sales loss.