vat invoice?

daxu

Hello,

I works full time for a company, recently I started to develop some software for another company. To get paid, they asked me to provide VAT invoices.
Initially, the company agrees to pay me for two weeks -1200£. If things goes well, they will extend it to several months.
I figured this is what I should do:
1. register myself as self employed
2. get a VAT number
3. issue VAT invoices.

Still I have some questions:
1. I downloaded an example VATinvoice from businesslink http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1073791022
can I just change it, print it out and hand it to the company?
2. What is the VAT rate for me to charge? is it 17.5%?
3. The company agrees to pay me 1200£, in my VAT invoice, should I do this:
Amount exclusive of VAT VAT rate VAT Net
1200 17.5% 210
VAT
TOTAL 1410
So the company should pay me 1410 totally. They can claim VAT back later.
4. The company pays me first, then I will issue this VAT invoice.
5. If I pay myself the whole 1410£, I will need to pay for tax and NI on it. I know I can claim some expenses, but the expenses are really small now.

Can someone help me out here, also I will go to tax man tomorrow or next week to get some advices as well.

Kitch_2

First of all, the VAT registration limit is currently £61,000, in other words if your annual turnover does not exceed this amount then you do not need to register for VAT.

The reasons for registering are many and varied but the obvious one is that you can reclaim the VAT that you have paid on your business purchases against the VAT that you have charged out on your invoices - however unless you are a very unusual sort of business you will always owe HM Government money at the end of the month or quarter.

There is an awful lot of good advice for you on http://www.hmrc.gov.uk/ including the best method of paying the VAT to the government, but (in my opinion) if you are invoicing mainly your time and do not have a high cost of materials to claim VAT back on, and your turnover is below the threshold, then you should think hard about registering.

As far as your list of questions is concerned, items 1,2 and 3 are OK, item 4 will in most cases be the wrong way around, the company will require your invoice before they'll pay it (and here you fall into a whole new trap of how long they'll want to take before they'll pay you - make sure you demand, and stick to your demand, for payment on production of invoice), and finally number 5 - don't ever forget that £210 of that invoice does not belong to you but HM Government - my advice would be to open a seperate bank account (make it a savings account that will pay interest to you) and whenever you receive a payment transfer the amount that is VAT into that account so that when you are due to hand that tax over to HM Governmant then you already have it to hand, and you've made some interest on it.

Understanding VAT is a massive part of running a business, try the goevrnment web site for some good free information.

daxu

I called HM helpline and VAT helpline, it seems that even the staffs there think it is really not worth to register a VAT number for this amont of money. So instead I will go to some umbrella companies. Hopefully they can handle this for me with small costs.

Kitch wrote:

First of all, the VAT registration limit is currently £61,000, in other words if your annual turnover does not exceed this amount then you do not need to register for VAT.

The reasons for registering are many and varied but the obvious one is that you can reclaim the VAT that you have paid on your business purchases against the VAT that you have charged out on your invoices - however unless you are a very unusual sort of business you will always owe HM Government money at the end of the month or quarter.

There is an awful lot of good advice for you on http://www.hmrc.gov.uk/ including the best method of paying the VAT to the government, but (in my opinion) if you are invoicing mainly your time and do not have a high cost of materials to claim VAT back on, and your turnover is below the threshold, then you should think hard about registering.

As far as your list of questions is concerned, items 1,2 and 3 are OK, item 4 will in most cases be the wrong way around, the company will require your invoice before they'll pay it (and here you fall into a whole new trap of how long they'll want to take before they'll pay you - make sure you demand, and stick to your demand, for payment on production of invoice), and finally number 5 - don't ever forget that £210 of that invoice does not belong to you but HM Government - my advice would be to open a seperate bank account (make it a savings account that will pay interest to you) and whenever you receive a payment transfer the amount that is VAT into that account so that when you are due to hand that tax over to HM Governmant then you already have it to hand, and you've made some interest on it.

Understanding VAT is a massive part of running a business, try the goevrnment web site for some good free information.

Kitch_2

Do it yourself.

Its really as simple as taking a template of an invoice (MS Word has some examples for instance) and typing one out for yourself.

Show what you are invoicing them for and for how much and then summarise down the bottom with a total - if you are not VAT registered then do not mention VAT anywhere on the invoice, if reference to VAT is on the template then delete it.

Give each invoice a number and then keep a simple spreadsheet of what you have invoiced and when, and enter your clients payments on there when they pay you - its also a good idea to open a seperate bank account for your business dealings so that its easy to define what is and is not business related expenses/income.

Remember to get bills and invoices for everything you spend in the course of your business and keep a list of them on another page of your spreadsheet, in simple terms the difference between your income and expenses is all that you will be taxed on.

Decide when your tax year is going to start from (ie the first month that you invoice them) and then have a word with your local Inland Revenue office as to when they will want you to submit a return - if you simply send copies of your purchase and sales invoices records to them then they will work out the tax for you, you don't even need an accountant - you should only use one if they can save you more tax money than they themselves will charge you, bear in mind that an accountant will also give you advice on other things that can be claimed for outside of your obvious expenses such as office and heat & light overheads that can be claimed legitimately as a business expense even if you are working from home.

If your business is as simple as you say (ie its labour only with regular payments and invoices involving no credit terms) then I'd be really upset if I had to involve a third party to keep my records for me.

jimclark1967

Just to clarify, being asked for a VAT invoice doesn't mean there has to be VAT on the invoice, just that IF you are VAT registered, you include the VAT.

As Kitch says, do it yourself. Sounds like you'd have little to gain from voluntary VAT registration.

JC

Bossyboots

Altarf wrote:

But the company that is engaging him to do the software development may have a lot to gain. They may be concerned that if he is not VAT registered the other half of HMRC may decide that he is an employee. So to avoid any future difficulties they may have decided not to engage any self-employed contractors who are not VAT registered.

We use a band of self employed people at work for ad hoc jobs. They simply supply invoices which we pay. We had an inspection just a couple of years ago and it was verified that the procedures we use are correct and as such there was no question of considering those people as anything other than self employed.

The query arises when you are supplying room space and equipment (for example) for the person to do the work. If the OP is not given any assistance to do the work (and supplying a room in itself does not make someone an employee if you do it correctly) and is supplying detailed invoices (this is important, it must state name and address and what work the invoice is for) there should be no problem with HMRC.

NeilW

have decided to take a belt and braces approach and insist on VAT registered contractors.

Well if they have they are misguided. VAT registration has absolutely no bearing whatsoever on employment status.

NeilW

daxu

Just called the company and they are ok with a Non-VAT invoice.

For the two weeks, they agree for 1200£ and 20% on starting, 30% on the end of the first week and 50% when finish.

So I am trying to issue this kind of not-vat invoice to the company:
Jerry Short (my nick name on Internet)
17 software drive
london e1 3fr
telephone:

Invoice number: jerry001
date: 20/08/2006
due date: 20/08/2006
To: company name
Fees:
Contracting Services
20% of the 2 weeks @£600 per week 240£
total: 240£
Payment due now.
Money transfer to the accoutn below:

My name
My new sort code for this job
my new account number

Is there any problem with my first invoice?

Thanks

Jerry

Bossyboots

I wonder whether you ought to be more specific about the job you are doing in relation to the "contracting services" such as (for example) adding Project X or something like that. Other than that, it seems fine.

Stonk

NeilW wrote:

have decided to take a belt and braces approach and insist on VAT registered contractors.

Well if they have they are misguided. VAT registration has absolutely no bearing whatsoever on employment status.

NeilW

Indeed. Whether a contractor is VAT registered or not is frankly none of the client's business! The client can (and will) quite reasonably request "VAT invoices", but the amount of VAT charged on them could quite easily be zero.