Should I voluntarily register with the VAT man?

[MisterGoof]

Tommy,

if it is your first year of trading you get another 1% allowance so

£1000 * 1.175 = £1175 * 12 % = £141

thats £34 in your pocket for a bit of paperwork

[TommyFlockton]

Ah I see, so in the above case I do actually get to keep some of the VAT I charge my customer (£34 in this case). At least for the 1st year. The customer still only gets a bill for £1175 per 1k of services, yes? Now I see why the allowance is levied on the gross.

And of course I get to reclaim the VAT on a new laptop (for business use), broadband (ditto), petrol for business travel, etc!

[planetit]

Tommy,

There are two different ways of operating VAT being described here. The normal way described by Rebecca. You add 17.5% VAT on your invoices and pay it to the VAT man less any VAT you can claim on your expenses.

The other way is the flat rate vat scheme. You still charge 17.5% VAT on your invoices, but you are not allowed to claim back any of the VAT on your expenses (other than some very big purchases). Instead you pay the VAT man a flat rate based on the type of business you run. For many IT contractors that rate is 13% (of your gross income). It simplifies things, and if you don’t have many expenses you may save money. You have to apply to use this scheme. In the first year of VAT registration you can deduct an extra 1% from the rate.

[TommyFlockton]

OK thanks for that clarification planetit - the penny's dropped.

I'll do an estimate of the numbers and choose whichever method's likely to leave me most in pocket (the flat rate one is my guess).

Thanks for the contributions everyone.

[rebeccaloos]

Yes thanks PlanetIT - I didn't know about the flat rate scheme and will give that a look

[planetit]

www.hmce.gov.uk/business/services/flat-rate-dets.htm