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Julianortmann
Level 1

Business Idea

Hiya, I hope everyone is doing well. I have a business idea and would like some advice, about what kind of tax I have to pay.

I have a business debit card that gives me 1.2% Cashback on spending. It is only usable by a self employed person or a freelancer. I also received a quote for a card machine for 0.4% fee for transactions. So the general idea is, spend money on my own card machine and pay 0.4% and receive 1.2% cash back. Reinvest the profits and repeat month after month. After calculations, I would hit the VAT-Threshold quickly. Is that applicable? Does it make my business idea void?

What if I would register a LTD company. I would pay £100 including VAT from the self employed business to the LTD company. Recieving cash back and pay the 0.4% fee for transactions.

 

I could even reason the transfers. Self employed me would pay £100 including VAT to the LTD company and pay for a product. Afterwards the self employed me invoices the LTD company for 100£ including VAT.

Let me know, I am curios in how this would play out. What am I forgetting?

 

All the best, Julian

3 REPLIES 3
John C
QuickBooks Team

Business Idea

Hi Julian Thanks for reaching out to us on the Community. Hopefully there will be an accountant or relevantly qualified Community member that will be able to provide you with the advice you require.

paul72
Level 8

Business Idea

paul72_0-1726576475884.png

I like your ingenuity @Julianortmann !

 

Let me know, I am curious in how this would play out. What am I forgetting?

To read the Terms & Conditions of both the cashback & the card machine?

I think one or other card company would become suspicious long before it became a viable business & I'm pretty sure they would see it as fraud.

It might be a nice side-hustle for someone who already has a shop/business with a significant trade through a card machine but if your card is spending only at one location / card machine is taking only from one card it won't go unnoticed.

 

Besides that, there is usually a significant time-lag between the transaction & the payout - do you have sufficient capital to fund the first month, say?

What's the credit limit on the card?

Given that you're talking about £800 'profit' for £100,000 of turnover you would have to pay off a £5,000 limit almost daily to get a 'wage' from it.

 

VAT would be interesting - you could argue (from a VAT point-of-view) that it's simply moving money from one account to the other & outside the scope.  However, I think that argument might have been played out by carousel fraudsters too.

 

If set up as two companies, depending on how you classified the transactions (financial transactions) might not be VATable but that doesn't mean you wouldn't have to register.  But, you've just doubled your admin costs - LTD companies are not free to run!

Julianortmann
Level 1

Business Idea

Hiya, thanks for your response. I truly appreciate it.

 

There is nothing in the T&Cs about the kind of spending I am trying to do. And if worst gets worse, its not illegal, so I might just get banned from one of the programs. The card providor also has next day payments.


I feel like, its a win-win. The card company and the card payment providor all make money from it. 

There is also no limit on the card, as its a debit card. It only works with freelancers though, so I would only open one ltd company. 


What do you think the average admin costs are like for a company with this revenue?

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