Doubts about VAT

[Britind]

I am planning to start an IT contracting career and have a few questions about VAT. I went through a lot of threads here but couldn't find answers. Thanks in advance for your replies.

1. If I register for VAT as a Limited company, do I have to bill my clients for VAT even if my turnover is below the £73K threshold?

2. If and when I cross this VAT threshold, will my liability to pay VAT be applicable for the whole turnover (say £100K p.a.) or just the amount that is over the £73K (i.e just for the £27K)?

3. If I have to pay VAT for the whole turnover, can I invoice my client for the VAT not recovered from them before I crossed the threshold?

4. Assuming I don't register for VAT (and my client does not want to be charged VAT on top of my agreed daily rate), can I cease trading just before I cross the £73K threshold and start contracting through an umbrella for the rest of the year, and start trading again after a few months to remain under the threshold every year?

[DaveB]

I am planning to start an IT contracting career and have a few questions about VAT. I went through a lot of threads here but couldn't find answers. Thanks in advance for your replies.

1. If I register for VAT as a Limited company, do I have to bill my clients for VAT even if my turnover is below the £73K threshold?

2. If and when I cross this VAT threshold, will my liability to pay VAT be applicable for the whole turnover (say £100K p.a.) or just the amount that is over the £73K (i.e just for the £27K)?

3. If I have to pay VAT for the whole turnover, can I invoice my client for the VAT not recovered from them before I crossed the threshold?

4. Assuming I don't register for VAT (and my client does not want to be charged VAT on top of my agreed daily rate), can I cease trading just before I cross the £73K threshold and start contracting through an umbrella for the rest of the year, and start trading again after a few months to remain under the threshold every year?

1. Yes.
2. No. You charge and pay VAT from the date of registration. If you expect to go over the threshold from the outset you should register.
3. Doesn't apply. The only time you would do this was if you did not have your VAT number at the time of invoice. Then you would raise a seperate invoice for the VAT only when you got your VAT number and certificate. This is common practice and any reputable organisation can deal with it.
4. You could but if you know when you start trading as a Ltd that you will reach the VAT threshold you should register anyway or you will be treated as having deliberately evaded paying VAT. This is Not A Good Thing.

In practice you should register for VAT anyway. Companies expect to be charged VAT and it saves an awful lot of hassle in the long run if you do it up front. Plus, if you register for the Flat Rate Scheme it can actually earn you more money.

Go read the VAT/FRS guide elsewhere on the site. (Hint: Look at the navigation panel on the right hand side of the page)

[SueEllen]

4. Assuming I don't register for VAT (and my client does not want to be charged VAT on top of my agreed daily rate), can I cease trading just before I cross the £73K threshold and start contracting through an umbrella for the rest of the year, and start trading again after a few months to remain under the threshold every year?

Being VAT registered is not scary and the FRS is simple.

Plus it's the only area where HMRC will actually help you as you are collecting a tax for them - the people on their helplines if you are polite will help you and they also do free workshops.

[craig1]

Just a query thinking of the motive behind the questions: Are you worried about clients or agencies treating you less favourably for paying VAT? If so, don't worry, VAT is a transparent tax for businesses and is almost completely irrelevant for B2B transactions beyond shuffling money around.

In fact, you're more likely to be treated less seriously if you're not VAT registered as a ltd company contractor.

[Britind]

Thanks guys. I am new to contracting and the replies helped a lot.