Sole Trader - VAT Registration?
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wickmesh
Posts: 22 Forumite
Hi all,
I am a sole trader, trading in the UK, invoicing only UK companies. I work as a consultant with (currently) one main client. I began working for them in June 2016, after a period without a client.
My total invoices since June 2016 are approaching £85k - which is the current VAT threshold I believe. What I am struggling with is how much of what I've invoiced counts towards the VAT threshold - and thus do I need to register right now (as the total of my invoices approaches £85k) or can I put it off until later (when the total of only parts of my invoices get close to that amount)?
1) Is it quite simple and the answer is "the sum of everything I've invoiced for over any 12 month period"?
2) Or do I need to look more closely at my invoices and work out totals of each category within them? Is it a sum of two of these categories? I can divide my invoices into 3 basic categories:
a) Hourly rate (easy, that is VATable and I'd add 20% to this if I became VAT registered - that makes sense to me)
b) Mileage (I charge mileage at the std rates - 45p up to 10k/tax year then 25p thereafter - which my client pays). Is this VATable? If I become VAT registered, do I add 20% to this charge for my client?
c) Expenses (On which I have paid VAT at the rate charged to me by the supplier, and then passed on the whole charge to my client. E.g. food, meals, hotels, road tolls, materials bought for my client.) This I am struggling with - does it count towards the threshold? If I become VAT registered, do I pass on these expenses with VAT, or without VAT and claim it back myself?
I would much appreciate some advice please from those wiser than I!
Many Thanks
I am a sole trader, trading in the UK, invoicing only UK companies. I work as a consultant with (currently) one main client. I began working for them in June 2016, after a period without a client.
My total invoices since June 2016 are approaching £85k - which is the current VAT threshold I believe. What I am struggling with is how much of what I've invoiced counts towards the VAT threshold - and thus do I need to register right now (as the total of my invoices approaches £85k) or can I put it off until later (when the total of only parts of my invoices get close to that amount)?
1) Is it quite simple and the answer is "the sum of everything I've invoiced for over any 12 month period"?
2) Or do I need to look more closely at my invoices and work out totals of each category within them? Is it a sum of two of these categories? I can divide my invoices into 3 basic categories:
a) Hourly rate (easy, that is VATable and I'd add 20% to this if I became VAT registered - that makes sense to me)
b) Mileage (I charge mileage at the std rates - 45p up to 10k/tax year then 25p thereafter - which my client pays). Is this VATable? If I become VAT registered, do I add 20% to this charge for my client?
c) Expenses (On which I have paid VAT at the rate charged to me by the supplier, and then passed on the whole charge to my client. E.g. food, meals, hotels, road tolls, materials bought for my client.) This I am struggling with - does it count towards the threshold? If I become VAT registered, do I pass on these expenses with VAT, or without VAT and claim it back myself?
I would much appreciate some advice please from those wiser than I!
Many Thanks
0
Comments
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No, you don't break it down like that. It's based on total invoicing regardless of what you're invoicing for. The only thing you could exclude (assuming no exports, no exempt sales or "out of scope" sales), would be genuine disbursements, i.e. where you've bought something on behalf of your client and you invoice them for the exact amount.0
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Thank you Pennywise, that is very clear!
I'm not quite at the threshold yet but I won't delay contacting HMRC and registering.
The only question left is how I charge VAT to my client - do I charge it on mileage (2b) and expenses (2c) as well please?
Thanks
Wickmesh0 -
Thank you Pennywise, that is very clear!
I'm not quite at the threshold yet but I won't delay contacting HMRC and registering.
The only question left is how I charge VAT to my client - do I charge it on mileage (2b) and expenses (2c) as well please?
Thanks
Wickmesh
Once you are registered for VAT, you charge VAT on all taxable supplies.
HMRC will provide you full info when you register ... or better still, speak to your accountant
Expenses are usually something that employers pay to employees
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The 85k is based on turnover but as a sole trader you would be better to base the year end on the end of the financial year at the 5th April. So start this year from the 6th April.0
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Thanks - but yes and no...The 85k is based on turnover but as a sole trader you would be better to base the year end on the end of the financial year at the 5th April. So start this year from the 6th April.
HMRC make it very clear that the 85k threshold is based on any 12 month period, so I'd be OK (not exceed the threshold, at least for now) if I could go by tax years but I cannot!
As for the charging periods, it I expect it will suit me to pay yearly rather than quarterly, but it will make no difference to me whether I base my year end on the tax year, or from when I registered for VAT... in fact if anything it will be easier to base it on from when I registered.0 -
OP, when you do reach the VAT threshold it might be worth while you familiarising yourself with this in advance:
as wet-weekend says, what you are calling mileage and "expenses" are more correctly simply your costs and if billed to your client are indeed part of your turnover for VAT purposes so you will be adding VAT to the values when you do register and bill for them
the only time you do not add VAT to the values on your bill is when the item is a disbursement. That is a special term as explained in the link, everything else is simply a "cost" which you are passing on to your client.
https://www.gov.uk/guidance/vat-costs-or-disbursements-passed-to-customers0 -
Thank you - yes that makes a lot of sense!OP, when you do reach the VAT threshold it might be worth while you familiarising yourself with this in advance:
as wet-weekend says, what you are calling mileage and "expenses" are more correctly simply your costs and if billed to your client are indeed part of your turnover for VAT purposes so you will be adding VAT to the values when you do register and bill for them
the only time you do not add VAT to the values on your bill is when the item is a disbursement. That is a special term as explained in the link, everything else is simply a "cost" which you are passing on to your client.
https://www.gov.uk/guidance/vat-costs-or-disbursements-passed-to-customers0 -
Have you discussed with an accountant the pros and cons of voluntarily registering? If you deal with VAT registered companies you may well be better off registering now rather than waiting until you're forced to. You could well have been best to have registered at the outset.0
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Thanks - probably more useful advice to those who have that option, as I am at the point of being forced to register - hence I have done so. But to be honest, I never thought the business would be doing so well as to need to be registered!Have you discussed with an accountant the pros and cons of voluntarily registering? If you deal with VAT registered companies you may well be better off registering now rather than waiting until you're forced to. You could well have been best to have registered at the outset.0
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