Charging VAT when not yet VAT registered?

willyboy104

Hi there.

I have a new client that is likely to take me over the VAT threshold this year, the contract is for 12 months and if all goes to plan within the 12 months the overall revenue / media spend will put my turnover over the threshold.

With this being said, I am billing them the initial fee as well as a monthly fee but as I am not yet VAT registered I can't charge VAT. However, what do I do going forward - do I simply add VAT when I finally become VAT registered?

Do I have to worry about back paying any VAT or not?

Thank you.

Slinky

When you approach the VAT threshhold you will need to register. You cannot charge it when you're not registered. I would inform the client that this scenario is likely to happen during the contract - it may affect them depending on if they are VAT registered or not themselves. Even if they are VAT registered, if they are on the flat rate scheme which means they pay a percentage of their turnover, not the full 20%, it could have an affect on their business, so best warn them in advance.

CKhalvashi

Slinky wrote: »

When you approach the VAT threshhold you will need to register. You cannot charge it when you're not registered. I would inform the client that this scenario is likely to happen during the contract - it may affect them depending on if they are VAT registered or not themselves. Even if they are VAT registered, if they are on the flat rate scheme which means they pay a percentage of their turnover, not the full 20%, it could have an affect on their business, so best warn them in advance.

My advice for non-VAT registered companies is to charge as if there was VAT, then using the extra 1/6th to pay the VAT bill when registered.

No, I'm not saying to invoice VAT when there isn't, rather when dealing B2B, to price a £100 job as £120, meaning that your pricing can stay consistent when you do need to do so, as £120 and £100 + VAT both equal £120.

Ultimately, 99% of the time, you're better off being VAT registered if dealing mainly B2B, as this can help win more work.

willyboy104

Thanks both.

Do you know how long the process generally takes to get VAT registered?

phill99

willyboy104 wrote: »

Thanks both.

Do you know how long the process generally takes to get VAT registered?

It can be done on line and takes as short while. However, you may wait up to 30 days to get your VAT number.


When you invoice, you need to include the VAT number on the invoice. If you are not in the possession of a VAT number when you raise an invoice you just need to state that the VAT number is awaited.

zygurat789

CKhalvashi wrote: »

My advice for non-VAT registered companies is to charge as if there was VAT, then using the extra 1/6th to pay the VAT bill when registered.

No, I'm not saying to invoice VAT when there isn't, rather when dealing B2B, to price a £100 job as £120, meaning that your pricing can stay consistent when you do need to do so, as £120 and £100 + VAT both equal £120.

Ultimately, 99% of the time, you're better off being VAT registered if dealing mainly B2B, as this can help win more work.

There is no VAT bill as such, you are merely paying to HMRC those monies which you have collected on top of you sales less, of cousse, the money you have paid on your VAT invoices received

To include the VAT element in your non-VAT registered invoices means that when you do register your cost will go down, your customer may notice this and may not be too impressed.

willyboy104

OK thanks all.

So I've gone through the VAT registration process, it was some what confusing but I think I have completed it right, well to the best of my abilities at least.

However, one thing that came up was the FRS (flat-rate scheme) which apparently I am entitled to, so I checked boxed the scheme.

If I am right in understanding, this means I charge 20% VAT but only pay between 11-13% VAT to the HMRC?

Aquamania

You can't add VAT to your invoice unless you are registered for VAT

If you want up your prices by 20%, which you obviously need to do upfront before a contract is formed, and think you can get away with that higher price, that's up to you.

Most people with even the slightest knowledge of the VAT system will not agree pay any VAT unless you can prove you are registered. That may be a request to see your VAT certificate, or they may agree to just your VAT number (the details of which can be checked out online)

Once you are registered for VAT, you must charge VAT at the applicable rate on all taxable supplies. Such an invoice has a number of legal requirements that must be included, and your VAT registration number is one of those.

For some more basic information, see here:
https://www.gov.uk/vat-registration/overview

pleasedelete

The flat rate VAT scheme depends on the nature of your business. Many are higher than 11-13%. What kind of business is it?

willyboy104

It's an online advertising agency, so I chose advertising as the sector/category.

Aquamania

willyboy104 wrote: »

...If I am right in understanding, this means I charge 20% VAT but only pay between 11-13% VAT to the HMRC?

Yes, you would charge 20% on your taxable supplies (assuming the full rate apples, which it probably does), and only pay the agreed flat rate to HMRC.

What you can't do (in most cases) is reclaim any vat paid on purchases, known as input tax. The difference between what is collected and what is paid to HMRC is intended to cover that.

I think it's fair to say that in most cases, those entitled to use the flat rate scheme usually benefit from doing so, not to mention the simpler records required to be kept & submitted.