to VAT register or not?

vernall

hi guys

i wonder if someone could tell me something(that maybe i should of enquired about before now)

i have been self employed for the last 16 years and earn approx £35,000pa.i travel to various places around the country doing a specific skilled job(im not selling goods or anything like that)i work for what you could call an 'agent',he holds the contracts with the various companies and dishes the work out to the people working for him,they pay him monthly and he pays us monthly.i dont have to physically buy anything to do the job apart from car fuel(approx £300 a month).i have an accountant(i could probably do this myself but find it easier lol).due to the distance i travel(approx 30,000 a year) i dont claim for car expenses i.e. fuel,car servicing etc i claim the business mileage method (40p first 10,000 miles 25p thereafter) when i switched to this a few years ago(started travelling a lot lot more) it cut my tax bills massively.my accountant claims for usual sundries i.e. phone,postage etc.

would i see any benefit in becoming VAT registered?
what could i claim the VAT back on?......would it be simply fuel or is it on every single thing i buy?(personal too)....or could i not claim it on fuel as i do the business mileage method?
would i add VAT onto the invoice i send to the person i work for(agent) e.g. if i should be paid say £3000 for the month would i invoice him £3600 and would he claim this extra he is giving back via his VAT

theculverhouses

Hi Vernall

VAT is not something to take lightly as it does add another administrative burden to your affairs but to be honest this isn't anything your accountant shouldn't be able to deal with. All returns now need to be done online too, something to bear in mind if you are a bit of a technophobe (there are some exclusions but on the whole most people have to).

In terms of VAT you can claim then on things such as stationery, computers, accountants costs etc this is quite simply. You pay the VAT inclusive figure over to your supplier (which you are already doing at the moment) and then once a quarter you claim this back from HMRC as input VAT ( you can do monthly and annual accounting too btw).

On cars and fuel this is not so easy. If you are claiming an element of mileage from the company then by definition this is already just the business element so in actual fact you can calculate a small amount of VAT within the 40p/25p. Consider 12p of this is fuel and as long as you keep some VAT receipts you can claim the VAT on that 12p (VAT inclusive amount) - ask your accountant. As you know this covers repairs etc (all car costs) so you cannot claim any other VAT.

When it comes to what you charge you take your normal invoice value and raise an invoice + 20% (from 4/1/11) to your goods and services (subject to it being a vatable supply) and then your customer claims this back on their VAT return. Bear in mind though that if they aren't VAT registered that they might still only agree to pay you the figure they were before and you'd be worse off.

For most 'contractors' where the major input cost to their business is time/wages then I would seriously consider the FLAT RATE SCHEME. It is very easy to run yourself and also means you make more money out of it.

Example

Invoice £1000 + 20% = £1,200. Your customer pays you this but to HMRC you pay over a fixed percentage rate e.g. 12% of the gross.

Therefore you pay over £1,200 x 12% = £144.

The downside is you cannot claim any input VAT on your purchases (except if you buy something costing more than £2,000 including VAT) when you can. The upside is it keeps things very straightforward for you (no need to keep detailed input VAT calculations) and in the example above you've just made £56.

The percentage has to be agreed with HMRC when you register for VAT - you have to do the normal VAT registration form plus a FRS application.

If all of that sounds confusing, talk to your accountant, he'll/she'll be able to help you understand this.

Whilst I've taken every care to be as accurate as possible please don't place heavy reliance on the above comments without seeking professional advice first, I am an accountant but don't know the intricacies of your business.

Best of luck with it all

Tim

chrismac1

In my view the main issue to consider in your sort of business is how your customers will view you becoming VAT registered. Let's say your next bill is for £1,000. If that customer is VAT registered, your invoice becomes £1,200 with 20% VAT - but no worries, your customer can reclaim that £200 VAT so is no worse off.

Now suppose that £1,000 bill is to a non-registered customer. Is he or she going to welcome a 20% price increase? I think not. So you will probably end up invoicing the same £1,000 but the value to you is just £833 as you'll be paying £167 in VAT to HMRC before long.

So if all your customers are VAT-registered and you keep orderly books, it is a no-brainer to register voluntarily. Likewise if most of your sales were zero-rated (for example a milkman) it's a no-brainer as you're not hitting your customers with unclaimable VAT, but at the same time you get to claim VAT on your taxable purchases.

For most businesses this issue is not so clear-cut. They have a mix of registered and non-registered customers and have to weigh this up carefully. It's not an irreversible step as de-registering is always an option if your sales are under £70k, but it's not without hassle. So think long and hard unless this is a "no-brainer".