Registering for VAT

j-mes_2

I've read plenty about the pros and cons of registering for VAT, and as somebody deciding to register as self-employed alongside full time employment I've decided not to register for VAT.
I'll only be dealing with a few grand at max each year so I don't think it's worth the hassle.

What I just want to make absolutely certain of is to do with invoicing. If I'm not registered for VAT then I essentially just charge my clients the base amount and that is all, regardless of their tax registration status, correct?

So for an invoice like this:

Web Design Work: £500
Graphic Design Work: £500
Total: £1000
Amount Payable: £1000

And this is the same if it were for a big Ltd company or some guy working in a shed?

They pay me this £1000 then I put 17.5% (£175) of this away for safekeeping, then when the tax return comes I just give the taxman that.

If that's it then I am totally set, seems almost too simple to be true, which is why I thought I'd post this here, despite the fact that I probably look quite stupid now..

Thanks for any info in advance..

Gertie_Walker

Yes, your first question is correct - if you are not VAT registered, then you dont charge VAT, whether your customer is VAT registered or not.

Your second question is incorrect - as you are not VAT registered, you have not charged VAT and no part of the £1000 is liable to VAT - you keep the lot (but of course you would pay income tax on the profit element of the £1000).

j-mes_2

ahhhh..

So if over the year I received £10,000 and spent £1,000 then I would only pay income tax on £9,000?

Since I work in an industry which requires almost no expenses, but I am unlikely to go over the basic rate of income tax, I should really try to keep 20% of my earnings for the taxman?

baby_fuzz

as I understand it, if you are not VAT registered, you:

1. cannot charge VAT or issue VAT invoices
2. cannot claim VAT on VATed items that you purchase

This also means that if you are doing work for a client who IS VAT registered, they are not able to claim VAT relief back against the work that you do.

Also, you do not have to keep back 17.5% for the tax man - you would need to save back the amount for income tax - depending on your overall income bracket including what you get in your FTE.

As you will be earning money outside of your FTE, you would need to fill in a tax return each year - and pay any extra tax due. Also, you need to be careful to save more money than you might imagein if the extra earnings move you into the next tax bracket.

j-mes_2

Yeah I think I had a bit of confusion between vat and income tax which became instantly clear as soon as I read Gertie's post..

I will almost certainly not go into the next tax bracket, I think I might just put 30% of all payments I receive into a bank account, that way come tax return time I should be able to pay up all of it without any hassle

baby_fuzz

j-mes wrote: »

I will almost certainly not go into the next tax bracket, I think I might just put 30% of all payments I receive into a bank account, that way come tax return time I should be able to pay up all of it without any hassle

And hopefully, have a nice lump sum left over for something fun!

j-mes_2

Hopefully!


Thanks again

Chinkle

30% is a sensible amount to set aside, as you need to consider national insurance too.

property.advert

If your clients are all VAT registered and thus do not get hit with a price increase when you start charging VAT, then why not consider the flat rate VAT scheme ?

Working on VAT at 20%, your business might find it has to pay a flat rate of 13% which would mean that your £1000 income becomes £1200 but you have to only pay away £130 leaving you £70 ahead of where you are now. Loads of details on HMRC website.