what is the best way for me to charge?

samiam85

Hi i formed as a limited about 6months ago and haven't really done much business yet.

I've just got some work designing another companies website.

I said i'd charge £200 a day and it would take 4-5 weeks.

I want them to pay my limited not me because thats what its there for.

Taxwise Would it be better for me to charge a daily rate or a lump sum at the end?

Do i have to add VAT? i'm not vat registered.

Do i need to make an invoice? what info would this need?

Anything i've missed?

thanks a lot for your time and effort in advance

fengirl_2

You must issue an invoice in the name of your company - this will form an important part of the records for your company as well as being proof for your customer that they have paid you. You cannot charge VAT if you are not registered.

It makes no difference how you charge them - at the end of the day, the company will be liable to tax on invoices issued.

Why are you operating through a limited company if you are not employing staff or not doing much activity?

vivatifosi

fengirl's points are entirely valid, but I wanted to just answer the question about charging from my perspective.

I charge my customers one of three different ways:

1. Set day rate

The benefit of this is that I know exactly what I am getting per job. The downside is that it can be hard to increase set day rates in a competitive environment if your competitors are keeping their prices the same.

2. Set project rate. Over time you will probably find your customers ask for this as they want to know how much it costs them to get the work done, not how much you want to be paid. The benefit is that you can tailor the price to the job. You may also earn a bit extra if you manage to get the job done more quickly than you expected. However, be aware that you may find that jobs take you longer than you expect.

3. Success fee basis. I take very few jobs on this basis and only do it with one client. In this I scenario I do work up front and only get paid if they win their job. For me this can only work with people I know well and trust. Otherwise how would I be sure that they hadn't won the work and not told me? Or underpaid me for my efforts? I do about 10% of my work on this basis. Initially I made very little money out of it but know I have a sense for what would be successful and make 1/3rd of my income this way. However I wouldn't want to rely on this stream to pay my bills etc.

For clarity you need to know what your customers want up front. Decide before you have clients whether or not you want to be VAT registered. You should always let customers know if you are going to charge VAT (which obviously you can only do if you are registered), and you should also clarify who is doing the work in advance. If they don't know they are buying from your limited company how can they place an order that you are then going to invoice against?

Hope that answers a couple of your questions, but you do really need to be clear on this. Your local Business Link or enterprise agency may run courses that will help you cover this issue in more detail.

samiam85

thanks, very helpful.

i'm going to charge by either 1 or 2.
what i was asking was is there any benifet taxwise in charging using the different ways?

its not worth me being vat registered, but i dont understand where the vat goes?

if i was vat registered would i charge vat on web design / software development?
I'm not vat registered so what happens to the vat? does the government not get it? confused...

i'm a ltd because thats what seemed the best idea at the time, now i'm not so sure, but if business picks up soon then it will have been worth it, plus its good experience for me....

thanks again.

vivatifosi

Hi samiam

The big difference taxwise is between being a sole trader and a limited company, and between VAT registration and non-VAT registration, rather than how you arrive at the sum.

The situation between sole trader and limited company is complex. I've run my small business for four years now and the benefits in running a business this way have changed every single year since I've done this. In my opinion, and I'm no expert on this, the benefits of running a limited company have been substantially eroded by this government and may well continue to do so. When I started the benefit was being able to pay yourself a dividend at a lower tax cost than the equivalent salary, and finding the appropriate balance between dividend/salary for your business. This is now much harder and something you would need to speak to an accountant about.

VAT is less daunting than it appears. If you are only working for businesses it may be worth your while registering, though if you were, say a small tradesperson I'd say no go. The reason it works for people working with businesses is this, most businesses are VAT registered anyway, therefore they are going to be able to treat VAT as an expense (sorry accountants if that's not quite the right wording) and offset it. For example, my VAT reg is as a consultancy and I'm on the flat rate VAT scheme. I charge VAT of 17.5% on my bills making a total of 117.5% of the non-VAT amount. I then pay VAT 12.5% of the 117.5%, which means I work out slightly better off than if I hadn't paid VAT. The VAT office runs free courses for new businesses, as do many Business Link locations, so well worth getting on one of the running your business courses to get to grips with all this stuff.

samiam85

so i dont have to charge it and i dont have to pay it later?

basicly if i ask for £5000, i get £5000 and only have to worry about paying tax later. (which i hopefully wont have to with paying myself a wage of about £5000 and all my expenses etc... and maybe pay myself some dividends if more money comes my way).

where does the vat go?
are you saying that if i was vat registered, i could charge 5000*.175 and then only pay 5000*.125 and make £250 in the middle?

how much does it cost to be flat rate vat registered?

is this not a scam? why are the government happy in only getting vat sometimes?

the only thing i was really asking is if they paid me an hourly sallary, they would have to put me on the books and they would tax me NI me and ...

so when does that not have to happen? when the person (me) is self employed or ltd?

thanks

richt71

samiam85 wrote: »

so i dont have to charge it and i dont have to pay it later?

basicly if i ask for £5000, i get £5000 and only have to worry about paying tax later. (which i hopefully wont have to with paying myself a wage of about £5000 and all my expenses etc... and maybe pay myself some dividends if more money comes my way).

the only thing i was really asking is if they paid me an hourly sallary, they would have to put me on the books and they would tax me NI me and ...

so when does that not have to happen? when the person (me) is self employed or ltd?

thanks

You can only get dividends from a Ltd company. However while dividends are tax free you would still pay 20% corporation tax upto £300K profit per year and then 28% thereafter.
I'd recommend getting an accountant as they can really save money for you by structuring your business right - whether to be a Ltd or sole trader. And if Ltd how to pay yourself -salary, dividends or a combination of both.
Good luck. Sounds like you've started well!

richt71

samiam85 wrote: »

so i dont have to charge it and i dont have to pay it later?

basicly if i ask for £5000, i get £5000 and only have to worry about paying tax later. (which i hopefully wont have to with paying myself a wage of about £5000 and all my expenses etc... and maybe pay myself some dividends if more money comes my way).

where does the vat go?
are you saying that if i was vat registered, i could charge 5000*.175 and then only pay 5000*.125 and make £250 in the middle?

how much does it cost to be flat rate vat registered?

is this not a scam? why are the government happy in only getting vat sometimes?

the only thing i was really asking is if they paid me an hourly sallary, they would have to put me on the books and they would tax me NI me and ...

so when does that not have to happen? when the person (me) is self employed or ltd?

thanks

Makes no difference whether your a sole trader or Ltd to charging an hourly rate. And unless you are working for the same client on a monthly basis then you are not employed by them. Just as a kitchen fitter charging an hourly rate isn't your enployee.

vivatifosi

samiam,

You've got really good, but fundamental questions that we can only answer piecemeal here. Please, make a long list of everything you want to know and make an appointment at Business Link or your local enterprise start up agency (I say that because where I live I've got both and they are both helpful).

They will be able to take you through everything you need to know and it should be free of charge. Where I live you can even book some time with an accountant who will answer your questions in a short session free of charge.

Its great that you are getting work in, but you really do need to get these fundamentals in place now and before you start invoicing people.