New Sole Trader VAT Question

Bulla

I'm about to embark on my Sole Trader journey and I'm debating whether to register for VAT or not.

I will be offering services directly to other small business and will have little or no outgoings.

With that in mind am I right in thinking the only advantage to registering for VAT will be to portray a more professional image ?

I already own the computer I'll be working on so I don't anticipate any other VAT savings as I wont be buying anything to claim it back on.

I should also add that I expect my earnings will be quite low and not exceeding about 5k a year in the short term.

Thanks

InsideInsurance

Unless either:

1) Most your customers are VAT registered or

2) You are selling a zero rated product/ service

Then it would rarely be advisable to voluntarily register for VAT as it simply makes your prices 20% more expensive.

If you have exceptionally low costs then the Flat Rate VAT scheme would be the best option at the point that you do register. With this you simply only pay a percentage of your revenue to HMRC and cannot reclaim anything (the percentage varies by industry) rather than having to pay the net of VAT collected minus VAT paid on goods/ services bought.

I use flat rate VAT scheme as I likewise have very little overheads and make a few thousand profit from it each year but all my clients are VAT registered

Bulla

Thanks InsideInsurance,

I'm not selling a zero rated service but my guess is most of my customers will be VAT registered.

I'll be charging each customer a small monthly amount for a service I provide. I guess the question is do I charge without VAT, or charge +VAT. The monthly amount will be small so a 20% VAT amount to the cost wont be much in real terms

googler

For a turnover of £5k it's not worth the effort.

Bulla

googler wrote: »

For a turnover of £5k it's not worth the effort.

I'll be lucky if its that much

Jamie_Carter

If you had a lot of purchases, then it would be worth registering for VAT so that you can claim it back. But in your situation I wouldn't bother.

Bulla

On a related note, I wonder if its worth setting up a Business Account. I know they are without charges for a year/18 months but it might be easier/cheaper to just use a spare current account.

I suppose the only downside is having the account in my name and it not looking as professional on any invoices.

Jamie_Carter

Bulla wrote: »

On a related note, I wonder if its worth setting up a Business Account. I know they are without charges for a year/18 months but it might be easier/cheaper to just use a spare current account.

I suppose the only downside is having the account in my name and it not looking as professional on any invoices.

You have hit the nail on the head. It looks more professional.

You are supposed to open a business account anyway, but many self employed, such as builders don't bother.

Bulla

Jamie_Carter wrote: »

You have hit the nail on the head. It looks more professional.

You are supposed to open a business account anyway, but many self employed, such as builders don't bother.

I think I will, I can get 18 months without any charges and hopefully after that I will have built up enough business for any charges to be negligible.

Thanks

Jamie_Carter

Bulla wrote: »

I think I will, I can get 18 months without any charges and hopefully after that I will have built up enough business for any charges to be negligible.

Thanks

Or just change bank accounts after 18 months.

Savvy_Sue

Bulla wrote: »

Thanks InsideInsurance,

I'm not selling a zero rated service but my guess is most of my customers will be VAT registered.

I'll be charging each customer a small monthly amount for a service I provide. I guess the question is do I charge without VAT, or charge +VAT. The monthly amount will be small so a 20% VAT amount to the cost wont be much in real terms

But remember that you cannot CHARGE VAT unless you are registered - I'm sure you know this but it may not be so obvious to everyone who skims this thread in future!