Is VAT punitive for threshold contractors?

[northernladuk]

I can't fathom how somebody can be earning in the top few % of the country and yet get the basics of business (Which are well documented, well explained all over the internet) so utterly unbelievably wrong. OP, did you not do any research before becoming a contractor and taking legal control of a Ltd Co?

He must be doing better than me. I earn less than the NMW

[MrButton]

This reminds me of a convo with a contractor who i worked with who one month into his first contract (first invoice) said

"Ive just realised I have to invoice for VAT so I get 20% more"

[simes]

Ok so if I were to delay registering for VAT until I reached £85K earnings, then register, would I only collect VAT for the +/- £15K outstanding income for the earnings above the threshold? (ie, that would total around £3K for HMRC for VAT for my first year).
But then the next year I would be expected to claim VAT for the ENTIRE year - £100K? (ie, £20K VAT amount payable to HMRC in year 2).
Again this seems a bit wonky and lopsided in favour of HMRC.
Couldnt I just wait until I reached £85K income and THEN start charging VAT every year?

Sir, there is no unearthly reason to delay, and if you can raise your day rate subsequent to VAT registration (not sure I understand why, but there we go) then there would seem to be Every reason To register.

In a virginal world without company expenses, if you earn £1000 while not VAT registered, you are left with £1000.
If you are registered, and if you earn £1000, then you charge £200 VAT, in three months' time pay the £200 to HMRC, and you are still left with £1000.

As above, you are purely collecting for and on behalf of HMRC.

I would have thought these words would have been entirely redundant but just in case...

[oilboil]

Ok so if I were to delay registering for VAT until I reached £85K earnings, then register, would I only collect VAT for the +/- £15K outstanding income for the earnings above the threshold? (ie, that would total around £3K for HMRC for VAT for my first year).
But then the next year I would be expected to claim VAT for the ENTIRE year - £100K? (ie, £20K VAT amount payable to HMRC in year 2).
Again this seems a bit wonky and lopsided in favour of HMRC.
Couldnt I just wait until I reached £85K income and THEN start charging VAT every year?

No VAT is an annual threshold - so if you go over it in the year all your services are VATable (even ones you invoiced and didn't charge VAT on)

You then have two choices - go back to the client and tell them you are a muppet and forgot to charge VAT or pay it out of pocket.

You need an accountant like a bear needs honey - and you need one fast or this is going to cost you a fortune or ruin your "professional reputation" with your clients and contacts

[northernladuk]

Sir, there is no unearthly reason to delay, and if you can raise your day rate subsequent to VAT registration (not sure I understand why, but there we go) then there would seem to be Every reason To register...

I'm confused. You've given the same advice to raise the rate twice but you don't understand why? How can you give advice when you don't know why you are giving it? What have I missed here?

Quite simply, you should get VAT registered, up your day rate and make an annual saving of your £3-4k.

[LondonManc]

Let's start with an easier question. Have you got an accountant?

[gables]

No VAT is an annual threshold - so if you go over it in the year all your services are VATable (even ones you invoiced and didn't charge VAT on)

You then have two choices - go back to the client and tell them you are a muppet and forgot to charge VAT or pay it out of pocket.

You need an accountant like a bear needs honey - and you need one fast or this is going to cost you a fortune or ruin your "professional reputation" with your clients and contacts

Nope, it's a rolling 12 month period and you only charge VAT from when you registered, unless you should have been registered earlier (it's a rolling 12 month period) then you have a problem.

Basically be on the ball about it.

[Lance]

No VAT is an annual threshold - so if you go over it in the year all your services are VATable (even ones you invoiced and didn't charge VAT on)

You then have two choices - go back to the client and tell them you are a muppet and forgot to charge VAT or pay it out of pocket.

Rubbish. Every word of it.

[TheCyclingProgrammer]

Unless you almost exclusively work for non-VAT registered clients, or clients that mainly make VAT exempt supplies and are unable to recover your VAT, then I can't see how being VAT registered would ever be an issue.

Yes, there's a bit more record keeping and the requirement to submit a VAT return every quarter, but IMO that's more than outweighed by the ability to recover input VAT on your costs. If you're using bookkeeping software you should be able to automate most of this stuff anyway. Staying deliberately under the threshold seems crazy to me.

[TheCyclingProgrammer]

Ok so if I were to delay registering for VAT until I reached £85K earnings, then register, would I only collect VAT for the +/- £15K outstanding income for the earnings above the threshold? (ie, that would total around £3K for HMRC for VAT for my first year).
But then the next year I would be expected to claim VAT for the ENTIRE year - £100K? (ie, £20K VAT amount payable to HMRC in year 2).
Again this seems a bit wonky and lopsided in favour of HMRC.
Couldnt I just wait until I reached £85K income and THEN start charging VAT every year?

Christ. VAT isn't rocket science. It beggars belief that you are finding this so difficult to understand.

Once you are registered for VAT you need to charge and account for VAT on all sales made post-registration.

If your day rate was £450 before you became registered, it will become £450 + VAT after you become registered. The VAT you charge gets paid to HMRC, leaving you with the same £450 you had in the first place. But it's actually better than that because you only pay the VAT you charge less the VAT you've paid, so your costs become cheaper.