Silver and limited companies - cunning plan or red herring?

[LawrenceChard]

2 hours ago, HerefordBullyun said:

Ive been following this thread with some interest. 

Dont you have to have a certain annual turnover of 70k also to claim VAT back as a business or was i just dreaming this?

 

2 hours ago, Bigmarc said:

I think if you turn over 70k or more you "must" be vat registered. 

 

2 hours ago, HerefordBullyun said:

Ok whats the difference? Is it that you can claim VAT back regardless but if you turn over 70k - you are required by law to be registered?

 

2 hours ago, Bigmarc said:

If you turn over 70k (maybe 80k) a year then you are required by law to register your business and start charging and claiming vat back (basically an unofficial tax collector). But I think at any point up to 70k it is up to you weather to register or not. I buy silver from a couple of people who basically run up to the 70k mark then stop for the year so not to cross the threshold. It's an added admin cost that small businessess may or may not want. 

I think this is right, it's been a few years but now the kids are growing up a bit I may dip my toe in again. 

 

2 hours ago, HerefordBullyun said:

85k now, ive just checked, but the website is old so I stand to be corrected. Im sure @LawrenceChard knows the threshold as he would with his annual turnover of Chinas gold holdings!

 

1 hour ago, Bigmarc said:

I should imagine he has minions that do that for him.

Who is likely to be affected

Businesses whose turnover is close to the existing VAT registration threshold of £85,000.

General description of the measure

The VAT registration and deregistration thresholds will not change for 2 years from 1 April 2022.

The taxable turnover threshold, which determines whether a person must be registered for VAT, will remain at £85,000 until 31 March 2024.

The taxable turnover threshold, which determines whether a person may apply for deregistration, will remain at £83,000 until 31 March 2024.

Retrieved from source by the Gold Minions:

😎

[Pete]

If you create a sole trader Company ( maybe a business seller on eBay ) e.g. to trade in silver coins and register for VAT, even though you don't anticipate selling a great deal, then you can, I believe buy a lot of stuff e.g. desk, computer, software, office equipment, printer, stationery, packing equipment, camera, etc and claim ALL this VAT back so saving about 20%.
If after a year you close the business, having sold very little, are you able to keep all this stuff without paying back any of the saved VAT ?

[LawrenceChard]

2 minutes ago, Pete said:

If you create a sole trader Company ( maybe a business seller on eBay ) e.g. to trade in silver coins and register for VAT, even though you don't anticipate selling a great deal, then you can, I believe buy a lot of stuff e.g. desk, computer, software, office equipment, printer, stationery, packing equipment, camera, etc and claim ALL this VAT back so saving about 20%.
If after a year you close the business, having sold very little, are you able to keep all this stuff without paying back any of the saved VAT ?

Almost certainly not!

😎

[Silverlocks]

3 hours ago, Pete said:

If you create a sole trader Company ( maybe a business seller on eBay ) e.g. to trade in silver coins and register for VAT, even though you don't anticipate selling a great deal, then you can, I believe buy a lot of stuff e.g. desk, computer, software, office equipment, printer, stationery, packing equipment, camera, etc and claim ALL this VAT back so saving about 20%.
If after a year you close the business, having sold very little, are you able to keep all this stuff without paying back any of the saved VAT ?

After 2 years you could liquidate the company and probably get away with keeping the gear as long as it didn't have a substantial book value.  I went perm for a while a few years ago and shut down my company and I still have a bit of the stuff like furniture and computer equipment, but it wasn't worth much at the time and I had been contracting for about 10 years prior to that.

Edit - from some further research on t'interwebs.

However, I think you would be getting into the territory that @BackyardBullion was talking about.  If I read HMRC's website and the interwebs at large correctly, you can't offset purchases of assets (including precious metals) against corporation tax, which is 19%.  You can only depreciate the assets subsequently and I think persuading HMRC that silver bullion was a depreciating asset is probably going to be a hard sell.

If the silver had any significant value you would probably have to liquidate it ('Members Voluntary Liquidation'), which is still subject to 10% capital gains tax before you would be allowed to wind up the company.

Maybe you could disguise the purchase of the silver as a director's loan, but I think that is also likely to draw the ire of HMRC and would still have you buying the silver personally and paying VAT, and you would have to pay the money back when you wind up the company.  Or, write it off as a bad debt.

I think the best possible outcome is that you may be able to liquidate the silver and take the money out of the company at 10% CGT instead of 20-40% self assessment tax.

Note that I am not an accountant, nor do I play one on TV.  In no way should this be construed as financial advice or suggestions for tax-evasion schemes.  If I knew a reliable way to dodge paying VAT on silver I certainly wouldn't go blabbing about it on social media.

I'm just a guy researching stuff on the interwebs.

Edited September 12, 2022 by Silverlocks

[Pete]

3 hours ago, LawrenceChard said:

Almost certainly not!

😎

Are you sure ?
Seems as if a LOT of small businesses that were dodgy or going bust, managed to get away with their bounce back £40 grand loans.
With so much to sort out and large swathes of the civil service working ( rephrase ... being ..) at home, I'm not so sure they have the time or resources to follow through; or perhaps it's down to the luck of the draw ?

[katyc]

On 11/09/2022 at 07:42, BackyardBullion said:

The Maths

Ltd company buys £100,000 worth of silver. You save £20,000 in VAT.

Spot price goes up and you sell.

You sell your silver to a dealer for £125,000 (zero rated VAT)

Your company makes £25,000 profit. You pay 19% corporation tax, £4750 leaving you with £20,250

You take this £20,250 as a dividend and assuming you are a lower rate tax payer and you have had no other dividends you pay dividend tax on £18,250 which is £1368.75

This means you have extracted £18,881 from the business as profit.

This calculation excludes all the other costs that might be involved like quarterly VAT returns, annual accounts and other professional fees required.

If you bought £100,000 for yourself as a private individual then you pay £120,000 for it.

In the above example we assume here that we can achieve the same +£25,000 profit by selling at a higher price to individuals and not selling to dealers where you achieve lower prices. More work, but nothing is free in this world.

Assuming you bought Britannias then that £25k is just pure profit. No Capital gains tax to pay, just profit.

You can see that there is a margin here, you extracted £18800 in the LTD company so you could sell your britannias for less and still end up with more money.

Big difference, you have to stump up more cash up front because you are paying the VAT.

As someone who used to do VAT returns for a living (back in the day), I think you make a good point. Although @Silverlocks made another good point re: buying with already taxed money ehen going down the personal route, which is an important consideration. If gold or silver did rocket (and that's your profit plan) then I'm guessing the persoanl route would be the way to go.

I'm not up to date on legislation nowadays, but I believe if we do buy and sell it personally (using British coins, hence avoiding CGT) - then we need to wait at least a year of owning a coin until selling it, otherwise it is seen as trading (as a sole trader) in HMRCs eyes.

If anyone knows for sure please confirm as I could do with knowing myself for when I come to sell my stack 😁

Edited September 14, 2022 by katyc

[katyc]

Very interesting post btw @Silverlocks 😊

[katyc]

On 11/09/2022 at 11:50, LawrenceChard said:

It does happen, but it tends to be done for larger volumes rather than smaller ones. So while private individuals might buy from 1 coin to 1 monster box of silver Britannias for example, sales to or via VAT registered companies tend to be from 1,000 coins to 10 or more monster boxes.

In the past year or so, it seems to have become much more common for people to buy precious metals, including gold and not just silver, through their businesses.

While we have not delved into the reasons in great depth, or checked with our accountants, it seems that there could be a number of advantages, including tax efficiency, through legal avoidance or mitigation, rather than evasion, of tax.

First, if an indiviidual buys percious metal, including gold, through his company, he can do so using the companies money including profits, which will only have been taxed at Corporaton tax rates. If buying as a private individual, he or she would have, presumably, paid income tax, and almost certainly at higher rates. The disadvantage is that when taking a profit, if the individual wants to receive the profits, they may have to pay a higher total rate, but at least they will have benefitted by deferring the tax, possibly for years or even decades.

It is not tax efficient to pay tax on investments at the front end, as that would mean less is invested. Even when the company liquidates the investment, although it will pay or account for tax on profits, the individual can defer his own personal tax on them by lelalving the profits in the company until he requires the income. Until then, he will not be liable for income tax on the profits, and this can be spread over a number of years, possibly avoiding higher tax bands. The income could also be taken as dividends rather than salary. Obviously there is probably a need to consult accountants or tax accountants before starting out, and the calculations may get quite complex. I don't even know if companies are liable for capital gains tax, and if so, whether it might be beneficial, but I'm not an accountant. In effect, the investment can work like a pension scheme. The company may also have secure storage facilities, and will be covering insurance costs or risks.

 

The OP specifically mentioned silver, because of the VAT element, although of course this would also apply to platinum, palladium, and many other things.

Now there is a clearer advantage, because a VAT registered company can reclaim the VAT, meaning more money goes into the investment, and less in tax, at the front end.

The downside is that when the company sells, it has to charge and pay VAT on the disposal. Its buyer gets charged VAT. HMRC are not deprived of any revenue, at least on the assumption that there is no fraud or false accounting.

If the end buyer is a VAT registered dealer, it can then reclaim the input VAT, but still has to charge and account for output VAT when it, in turn, sells.

At this point, there is a difference for the "final" dealer, because although these coins are "pre-owned" or "secondary market", they cannot be accounted for under the "special scheme" for  normal second-hand goods. the special scheme means the dealer only has to account for VAT on his margin. Buying from a VAT registered source, the dealer has to charge and account for the full VAT on them. this leaves the dealer with only a thin potential profit. Most collectors, stacker and investors expect to pay less for secondhand coins than for new ones. Additionally, silver coins may have now tarnished, or developed the dreaded milk spotting. The dealer's downside risk is still almost as high as for new silver bulllion coins, so the risk / reward ratio is less favourable.

A further point to consider, is that the dealer will need to run a third VAT status category. In addition to new VATable coins, and secondhand special scheme coins, it now has to have secondhand but VATable coins. This complicates accounting as this third category may need to be stored separately, and will need to be accounted for separately for VAT purposes. Not all dealers will be happy to have to do this. It requires extra staff training and extra care. And less profit!

Most dealers prefer trading secondhand coins under the spepcial scheme, as although it entails more accounting and recording work, there is a slightly lower downside risk, and a higher profit potential. Even so, some of the biggest bullion dealers, including some banks, choose not to operate a special margin scheme, because of the extra accounting work.

For the dealer, paying out input VAT to a new supplier also entails more work, as it needs to carry out some due diligence work to ensure the company it is buying from is indeed VAT registered, and is not likely to disappear or go into liquidation leaving its output VAT bill unpaid. In these cases, the dealer can be held responsible for HMRC's loss. or some under suspicion of collusion, conspiracy to defraud, and simply negligence in failing its due diligence, with associated record keeping.

It helps if the dealer was the original supplier to the company, as there can be more confidence that everything is legitimate, but this still does not remove the requirement to carry out due diligence checks.

One other possible advantage of buying silver through your own company could be if there was any future reduction in VAT, including temporary reductions. Another might be if it exported it, when the VAT would be zero rated.

I think I have covered most aspects, although there is bound to be something I have missed.

😎

Awesome reply/info 👏 😊

[katyc]

On 11/09/2022 at 11:57, Silverlocks said:

That is a jolly good question.  From what I can tell companies pay corporation tax on the profits of the sale, rather than capital gains tax.  However, I too am not an accountant and just go by what I can find on the interwebs.

That's correct. I guess, in a nutshell, if you're selling an item within a year then you're trading with Corporation tax to pay (if trading in a company). Where as Capital Gains Tax is on disposal of assets you've owned for some time.

Edited September 14, 2022 by katyc

[Mcgrimes]

What’s the case if you’re trading as a sole trader? Can you consider purchases as an expense and then sales as an income? But I’m the cash basis of accounting, will this hammer your profits?

 What happens if you never sell the bullion in subsequent years?

[Silverlocks]

I don't know how the rules apply to a sole trader - you can still be VAT registered as one, and it's mandatory if your turnover exceeds £85,000 pa.  If you're trading rather than retaining, then you can probably book the purchases as stock in trade.  However, if you sell it as a profit then I suspect the rules for income tax apply rather than capital gains - which the capital gains tax exemption for RM coins doesn't apply as far as I can tell.

I don't know how you would account for it if holding it long-term, though.

[katyc]

7 hours ago, Mcgrimes said:

What happens if you never sell the bullion in subsequent years?

The stock at year end (also known as "closing stock" is seen as a a sale in a way. So if you have 10k of unsold silver and gold left at year end (which may have, for example, retail value of 15k) then the left over stock COST (10k) is added to your turnover, hence taxed on. Harsh isn't it 😖.

However the good news is that following financial year has "opening stock" where it is deducted (so it's balanced back out and you'd get a tax saving the same as the tax you paid).

So you have 10k of stock left that's taxed at 19% corporation tax at year end. But it's seen as a minus at the opening of the following year so you get that tax paid back (let's say the next year end you have 12k of stock. It would be taxed less the 10k from last year so then you're only paying tax on 2k the next year). I hope that makes sense. Tough one to explain 😆 

Edited September 15, 2022 by katyc

[Mcgrimes]

4 hours ago, katyc said:

The stock at year end (also known as "closing stock" is seen as a a sale in a way. So if you have 10k of unsold silver and gold left at year end (which may have, for example, retail value of 15k) then the left over stock COST (10k) is added to your turnover, hence taxed on. Harsh isn't it 😖.

However the good news is that following financial year has "opening stock" where it is deducted (so it's balanced back out and you'd get a tax saving the same as the tax you paid).

So you have 10k of stock left that's taxed at 19% corporation tax at year end. But it's seen as a minus at the opening of the following year so you get that tax paid back (let's say the next year end you have 12k of stock. It would be taxed less the 10k from last year so then you're only paying tax on 2k the next year). I hope that makes sense. Tough one to explain 😆 

Makes sense, but on the cash basis of accounting you pay for expenses as they happen, so my understanding was that monitoring of stock levels isn’t necessary? 
for example, I’d imagine a plumber wouldn’t keep stock of his pipe elbows.

 I’m pretending to be under the vat threshold, if that matters