Basics of VAT

[gareth01422]

Hi guys

Back again just clear some thoughts up.

I am a design engineer contracted to a company at the moment. I have a ltd company set up and I invoice my work every week. I havnt registered for VAT yet. But may do shortly.

For this example lets say Im on £15/ hour and I work 35 hours/week. I travel to and from work by car (Saab 9-3 2.0 tdi) and the mileage is 250 miles / week.

Is this calculation correct?

£15 x 35 = £525

£525 x 0.175 = £91.87, VAT amount to add on.

£91 + £525 = £616.87 (invoice amount with VAT).

So if we have 250 miles/week at £0.40/mile, gives a total of = £100 (providing diesel receipts are kept)

This would leave a VAT amount for the week of £91.87 on the invoice, with a £100 claimable expense.

Is this how it works? as the amount of expense out numbers the invoiced VAT.

[gingerjedi]

You're confusing VAT with the mileage claim, they're completely separate entities.

Charge VAT on your invoice regardless of your travel arrangements.

Claim mileage against your invoice via your accountant.

[BolshieBastard]

If you are not VAT registered, you must not issue invoices that show and therefore charge VAT. You can only charge VAT once you are registered and have your VAT number.

Once you have registered for VAT, you can re issue invoices and charge VAT back to the actually VAT registration date.

You would charge VAT on top of the gross amount invoiced

ie £15 x 35 = £525

£525 x 17.5% = VAT of £91.87 (you can chose to round up or down but must be consistent)

The VAT office will also give you the VAT 'fraction' to enable you to work backwards from a gross vat inclusive amount to calculate how much of this amount is actually VAT.

ie £616.87 apply the VAT fraction to show the pre VAT amount.

[gareth01422]

If you are not VAT registered, you must not issue invoices that show and therefore charge VAT. You can only charge VAT once you are registered and have your VAT number.

Once you have registered for VAT, you can re issue invoices and charge VAT back to the actually VAT registration date.

You would charge VAT on top of the gross amount invoiced

ie £15 x 35 = £525

£525 x 17.5% = VAT of £91.87 (you can chose to round up or down but must be consistent)

The VAT office will also give you the VAT 'fraction' to enable you to work backwards from a gross vat inclusive amount to calculate how much of this amount is actually VAT.

ie £616.87 apply the VAT fraction to show the pre VAT amount.

Thank you for the replys guys

So on the figures I gave you, Would it be worth registering VAT?

What would be the benefits? if any?

[TheCyclingProgrammer]

If you're claiming mileage and you *also* have an agreement with your client to re-bill your mileage then the process for claiming the two things is different:

* As an employee of your Ltd co, you make a mileage expense claim to your Ltd company at the HMRC specified rates.

* If you are also re-billing this cost to your client, you add the total cost of your mileage (at whatever rate is agreed with your client, which should be in the contract and may or may not match the HMRC rate) to your invoice. However, this charge forms part of your service and you would also charge VAT on top of this amount.

[Scrag Meister]

Thank you for the replys guys

So on the figures I gave you, Would it be worth registering VAT?

What would be the benefits? if any?

46 weeks at £525 pw = £24150, def below the required level to register for VAT.

The threshold for VAT registration is £70k net taxable supplies, i.e. invoiced services.

As said before mileage is a seperate consideration all together.

DO NOT CHARGE VAT UNLESS YOU ARE REGISTERED AND PAYING IT TO THE HMRC AS THIS IS FRAUD!!!

[ctdctd]

What would be the benefits? if any?

If you register on the flate rate VAT scheme:-

Invoice client 525 x 46 = 24150
VAT 24150 x 0.175 = 4226.25
Total invoiced = 28376.25
Pay VAT man 28376.25 * 0.13 = 3688.92
(13% is the rate for IT services - your industry may have a different percentage)

Extra profit for your co = 4226.25 - 3688.92 = 537.34

Calculations are really easy - no need for full VAT accounting
Possible disadvantage - cannot claim VAT back on expenses or purchases (unless > £2000)

HTH

[LisaContractorUmbrella]

VAT is a tax that is payable to HMR&C if you invoice more than £70,000 each year. The basic formula for working out the VAT that you owe is to add 17.5% to the value of your invoice:

B Smith Sales Invoice No 12345

Hours worked 35
Hourly Rate £15

Total £525.00
VAT @17.5% £ 91.88
Invoice Total £616.88

The VAT amount of the invoice is money that you have collected from your client, on behalf of HMR&C, and is payable to them. Once a quarter (usually) you will need to add the VAT element of all the invoices you have raised in the period and that is then the total VAT liability (otherwise refered to as Outputs):

Invoice 12345 500.00 VAT £87.50 Total £587.50
Invoice 12346 750.00 VAT £131.25 Total £881.25
Invoice 12347 350.00 VAT £61.25 Total £411.25
Invoice 12348 500.00 VAT £87.50 Total £587.50

Total VAT payable to HMR&C £367.50

However, against this liability, you can offset the VAT element of the purchases that you made in the same period:

PC World Printer cartridges x 2 Invoice £115.90 VAT £20.28 Total £136.18
Staples Paper Invoice £10.90 VAT £1.91 Total £12.81

Total VAT reclaimable: £22.19

Therefore in that quarter the amount that you would pay would be £367.50 - £22.19 = £345.31

You should remember that everything you put on your VAT return must be supported by the correct paperwork.

HTH

[ctdctd]

Therefore in that quarter the amount that you would pay would be £367.50 - £22.19 = £345.31


HTH

Or using the flat rate scheme in Lisa's example, pay the VAT man 13% of gross invoice = £320.77 and no nasty VAT accounting required

[gareth01422]

Right ok,

So in effect I would be a collector of VAT, IF I was VAT registered.

So does the petrol allowance work the same way as the ink and paper example?

Gareth

p.s thanks again for all the info