New contractor - registering for VAT

[boxingbantz]

A newbie here and my first post here so apologies if this has been asked before (as it no doubt has).

Anyway, I am coming out of permanent employment to take on a contracting role in London and have just registered my own LTD company. I expect to be paid around £45k a year, outside of IR35, and am in the process of organising a bank account, insurance etc.

The one thing I need advice on is whether or not I should register for VAT or not? I read that you don't have to register for VAT if you earn under (I think) £70,000. Whilst I won't be turning this over, do I still need to register for VAT as my agency has said I will need to submit my VAT certificate? I read that voluntarily registering for VAT can have it's advantages? If I don't register for it, am I still entitled to claim for things come April when claiming against my corporation tax?

Any help would be much appreciated.

[Taxless]

A newbie here and my first post here so apologies if this has been asked before (as it no doubt has).

Anyway, I am coming out of permanent employment to take on a contracting role in London and have just registered my own LTD company. I expect to be paid around £45k a year, outside of IR35, and am in the process of organising a bank account, insurance etc.

The one thing I need advice on is whether or not I should register for VAT or not? I read that you don't have to register for VAT if you earn under (I think) £70,000. Whilst I won't be turning this over, do I still need to register for VAT as my agency has said I will need to submit my VAT certificate? I read that voluntarily registering for VAT can have it's advantages? If I don't register for it, am I still entitled to claim for things come April when claiming against my corporation tax?

Any help would be much appreciated.

You are below the limit where you have to register, but your agency/end client may insist on your being VAT registered.

If you register voluntarily and if Customs accept the application, then you can set the VAT you incur on expenditure against the VAT you charge on your invoices to the client, so you pay less VAT over to Customs.

For Corporation Tax the company gets a deduction for its allowable expenses on either the VAT-inclusive amount (where you are not VAT registered and haven't reclaimed the VAT element) or the VAT-exclusive amount (where you are VAT registered and have reclaimed the VAT element).

Assuming your client leaves you with an option, you need to estimate what expenses you will incur and then run the numbers to see whether it would be advantageous and don't forget to factor in the impact of operating the Flat Rate Scheme.

[TheCyclingProgrammer]

Can't imagine why a client/agency would insist on you being VAT registered. It makes no difference to them. Being on the flat-rate scheme can pocket you a bit of extra profit if your VATable expenses are minimal but that's about it really.

Are you sure your agency didn't just assume you were VAT registered and therefore asked to see your VAT certificate (which they are certainly entitled to do before they accept any VAT invoices from you)?

[Danielsjdaccountancy]

Can't imagine why a client/agency would insist on you being VAT registered. It makes no difference to them. Being on the flat-rate scheme can pocket you a bit of extra profit if your VATable expenses are minimal but that's about it really.

Are you sure your agency didn't just assume you were VAT registered and therefore asked to see your VAT certificate (which they are certainly entitled to do before they accept any VAT invoices from you)?

I agree with lukeredpath, registering for the flat rate will save the company money. The turnover will increase; yes it’s subject to corporation tax but definitely worth doing if you have very minimal expenditure VAT, which is often the case.
It’s easy to administer as well. No need to dig through receipts to find that small amount of VAT as its all based on the Gross sales amount.

[backrubber]

As already said, if your expenses are minimal, you can make a bit by using the VAT Flat Rate Scheme. If you need to, you could use Earnings Tracker to work out how much extra you would make. For a turnover of £45000, it'll probably be something in the region of £95 per month.

[boxingbantz]

Thanks for all for your replies. It has been very helpful.

[boxingbantz]

Sorry, two other points related to VAT:

a) If I am not registered with VAT, what do I invoice the agency. The daily rate PLUS VAT or just the daily rate?

and

b) When it comes to Corporation Tax and allowable expenses, do I get to claim back the WHOLE cost of a train tickets or just the VAT part of it (ie 20%) at the end of the financial year when it comes to paying the tax?

Sorry, new to all of this and have tried finding the answers before posting this.

[Wanderer]

a) If I am not registered with VAT, what do I invoice the agency. The daily rate PLUS VAT or just the daily rate?

Your rate is always quoted as Ex VAT. Do NOT even think about trying to invoice for VAT if you are not registered or HMRC will get very cross with you.

So:

If your rate is £X per day and you are NOT VAT registered then you invoice them for £X.
If you ARE VAT registered then you invoice them for £X + 20% VAT. You then do a quarterly VAT return and pay the VAT you collected to HMRC.

If your company buys something or incurs allowable expenses for (say) £1200 inc 20% VAT then you get a VAT receipt and deduct £200 VAT from the amount that you pay to HMRC every quarter. The way VAT works is that the client/agency don't care if you are VAT registered or not because they just claim the VAT back in this way so it makes no difference to them.

You should consider signing up for VAT and the Flat Rate Scheme because you can make money out of it. With the FRS, you charge VAT at 20% and pay 14.5% of the VAT inclusive amount to HMRC and keep the rest. On the FRS you can't reclaim VAT on purchases < £2,000 so do the sums to see if it's worth doing for you. There is a calculator here.

Note that some seemingly random things (certain foods, rent, train tickets, safety equipment) are exempt from VAT so there is no VAT to reclaim if your company has them as expenses.

See the link on the right side of the page, VAT and the Flat Rate VAT scheme for IT Contractors there is lots of useful information there.

b) When it comes to Corporation Tax and allowable expenses, do I get to claim back the WHOLE cost of a train tickets or just the VAT part of it (ie 20%) at the end of the financial year when it comes to paying the tax?

Here's how it works. Your Company makes (say) £10,000 of profit and could pay 20% corporation tax on that then pay it to you as a dividend, the net amount in your pocket is £8,000. In the course of your business, you incur costs of £1,000 which reduces your company profit to £9,000 so after tax you get £7,200 in your pocket. Effectively, you get to pay the expenses out of pre-tax income so you get a 20% discount. The money still comes out of your pocket ultimately, but it comes out of pre-tax income rather than tax paid income.

[v8gaz]

PS - You probably want to get an accountant

[SueEllen]

PS - You probably want to get an accountant

WHS

While you should know the ends and outs of how to do things and there is plenty of information on the HMRC website, an accountant is a valuable company resource.