Some newbie VAT qustions

[Ignis Fatuus]

...I can get my head round it - if you make £X per month as ltd and dont have any expenses how much you keep. I thought it is 20% corporation tax and that's it. Where does the VAT come in?
Thanks.

One of the tricky bits to get your head round when you are new is this:
You are not the company.
Money in the company is the company's money, not yours. It only becomes yours when the company gives it to you, as salary or dividends.
From the company's point of view, your salary and/or dividends are not income but expenditure.



E.g. company's invoice = 10,000.
So company's income = 10,000.

Company pays you for example 7,000 salary.
Some of that will go straight to HMRC as tax and Employee's NI, but the company's figure for the cost of the salary is 7,000.
On top of that the company has to pay HMRC Employer's NI, say 966. That's another cost to the company.
So total costs to the company = 7,966 (7000+966)
Therefore profit to the company = 2,034 (10000-7966).

Company will have to pay 20% corporation tax on that 2,034, = 406.80.



Note: total amount paid to HMRC therefore =
VAT 2000
ERs 966
EEs say 840
PAYE 1400 (or 2800 at higher rate)
CT 406.80

total to Hector = 5612.80, or 7012.80 if you are on higher rate tax. As Al Capone said, "taxation, that's a racket I'd really like to get into".

[captainham]

what is the thing about NLUK? Is the the forum's scarecrow?

He won't like being called a scarecrow. Ravenous pitbull might be more apt

[Ignis Fatuus]

He won't like being called a scarecrow. Ravenous pitbull might be more apt

Think of him as a soccer mom, without the lipstick. As far as we know.

[garnet]

Thanks guys,
Let me recap and see if I am right.
Since I am allowed not to register for VAT initially I can do that.
On the other hand I can do it if I wish so from day one. I see the benefits in being VAT company such as being able to claim VAT back when I buy things (input tax).
The bad thing about the VAT is if the client has in mind a daily rate of £X and haven't thought / dont want to add 20% VAT.

Any other pros and cons?
What would you do in my case? To reiterate - I havent seen the contract yet (being in the makes) so I dont know if the DR will be /w or w VAT.

[northernladuk]

What would you do in my case?

I would get an accountant and ask him.

[psychocandy]

Yes, register for VAT. Look at flat rate vat scheme too. Usually works out better for most.

But GET AN ACCOUNTANT.

[captainham]

I would assume the day rate is exc. VAT and tell the agent to get stuffed if they say different, then I would absolutely, definitely, positively be ringing around some accountancy firms with a view to getting one on board asap, before you even start.

If you register voluntarily upfront, there are various things you will need to do such as charging VAT on your invoices without actually charging VAT (i.e. charging the VAT amount but you're not allowed to call it VAT until you are VAT-registered, then you will need to re-issue invoices once you are registered, etc etc).

Otherwise you will find yourself in a whole world of hurt, and very quickly by the sound of it.

[captainham]

I would get an accountant and ask him.

Clare won't like you for that

[Craig@Clarity]

Clare won't like you for that

Clare WILL like you for this though. You spelt her name correctly

[LisaContractorUmbrella]

Thanks guys,
Let me recap and see if I am right.
Since I am allowed not to register for VAT initially I can do that.
On the other hand I can do it if I wish so from day one. I see the benefits in being VAT company such as being able to claim VAT back when I buy things (input tax).
The bad thing about the VAT is if the client has in mind a daily rate of £X and haven't thought / dont want to add 20% VAT.

Any other pros and cons?
What would you do in my case? To reiterate - I havent seen the contract yet (being in the makes) so I dont know if the DR will be /w or w VAT.

Bear in mind that the VAT on your invoices has to be paid to HMR&C once a quarter - you will need to record the VAT on invoices raised less VAT on invoices received and pay the difference - so this money needs to be retained within the company. Many rookies make the mistake of spending what is HMR&C's money and not theirs. Same applies to payments for corp tax so make sure you have a record of how much you owe at any point in time.