Getting near the VAT threshold

dllive

Hi

Im self employed. My usual income is about £60pa. Over the past 12 months Ive been working on an unusually large (for me) contract which has increased my monthly income, making my rolling 12 month income close to the VAT threshold. Im currently trying to keep my rolling 12 month income to about £82k. I do this by declining work for other - smaller - clients.

However, next month - or the month after - I may exceed the £85k threshold.

1) Is claiming temporary exemption from VAT straightforward to do?

2) How much does it cost to become VAT registered?

3) As I say, its just the past year where Ive been working on this unusally large contract that this has become a potential issue. In about 6 months time - when the job is finished - I will be back down to the ~£60k mark. So how easy is it to deregister?

Im interested to hear from others that have been in - or currently in - this situation.

Thanks 

PS
I dont think being VAT registered will offer me any benefits (I dont buy a lot of goods that I could reclaim the tax on for example). Just thought Id mention this in case someone suggests it may be advantageous to be VAT registered. 

BoGoF

1) Yes - see here and follow guidance/link at the bottom - https://www.gov.uk/register-for-vat
2) Nil
3) Easy - see link

Just note that the date you should register (if you have to) is the date you realise you are going to exceed the threshold not the date it actually goes over.

DullGreyGuy

Its only ever advantageous to be VAT registered if 1) your clients are all VAT registered businesses or overseas or 2) you sell products/services that are 0% rated (eg kiddy clothes)

dllive

BoGoF said:

1) Yes - see here and follow guidance/link at the bottom - https://www.gov.uk/register-for-vat
2) Nil
3) Easy - see link

Just note that the date you should register (if you have to) is the date you realise you are going to exceed the threshold not the date it actually goes over.

Great, thanks. I shall read the link later.

I should have been clearer with my second question: Roughly how much in accountancy fees does it cost to registering for VAT, and staying registered?

DullGreyGuy

dllive said:

BoGoF said:

1) Yes - see here and follow guidance/link at the bottom - https://www.gov.uk/register-for-vat
2) Nil
3) Easy - see link

Just note that the date you should register (if you have to) is the date you realise you are going to exceed the threshold not the date it actually goes over.

Great, thanks. I shall read the link later.

I should have been clearer with my second question: Roughly how much in accountancy fees does it cost to registering for VAT, and staying registered?

It depends what you get your accountant to do... registration and returns are simple and achievable with various free software for meeting the "making tax digital" and doing submissions. 

Did it all for my wife's self employment

Our accountant does it for my company but thats because they have an all in one price thats reasonable enough that I never bothered asking how much it would be if I took out VAT or payroll etc. 

dllive

Thanks, thats good to know. I dont know why, but Id assumed it was pretty laborious to register and maintain accounts for a vat registered business. 

I make my accountants life pretty simple - I methodically log all income/expenses in a spreadsheet. No shoeboxes full of receipts! I just give him my spreadsheet once a year and he does my return.

So if - or when I register - its just a case of adding vat onto every invoice, and itemising it on the invoice. Is there anything else I need to bare in mind during my day-to-day operations?

I presume its easy enough to de-register when the time comes - probably in a year or two?

DullGreyGuy

It's adding VAT to each invoice, adding your VAT number to each invoice and making sure they are overall compliant with invoicing requirements. 

Depending on how your spreadsheets work it's adding an extra column or two so you can report net sales/expenses and the VAT component separately. So on our expenses XLS for example we have a Total, VAT and a series of types of expenses (subsistence, travel, computer expenses, insurance etc) which you just stick the relevant net value under (then a checksum at the end to ensure VAT+net value = grand total to pick up keying errors)

If you do overseas sales then you need to be able to distinguish them as exports are 0% VAT typically but still have to be recorded and are reported seperately. 

dllive

Fantastic - thanks so much!
Becoming registered doesnt sound as onerous as I initially thought.

Slinky

Don't know what you do, but it may be worth checking out whether the Flat Rate Scheme may be of benefit to you. I was charging 20% VAT and actually paying a tax bill of 11% of total turnover (including VAT). My business expenses were mainly zero rated (so I couldn't claim any VAT back), and I actually made a useful profit on the VAT which I used to put towards my corporation tax bill.  My area was publishing, other categories have different rates.

DullGreyGuy

Slinky said:

Don't know what you do, but it may be worth checking out whether the Flat Rate Scheme may be of benefit to you. I was charging 20% VAT and actually paying a tax bill of 11% of total turnover (including VAT). My business expenses were mainly zero rated (so I couldn't claim any VAT back), and I actually made a useful profit on the VAT which I used to put towards my corporation tax bill.  My area was publishing, other categories have different rates.

They've already said they have minimal expenses and so would have a flat rate of 16.5% meaning 20p per £100 billed to clients. Would need to check if flat rate or normal VAT scheme would be beneficial 

uknick

Business VAT returns have to be done through the HMRC Making Tax Digital gateway.  A simple spreadsheet will not be sufficient to meet this requirement.

You need some form of bridging software, most are chargeable but there are a few free ones.