Some newbie VAT qustions

[captainham]

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

Good job too, as she is my own accountant so I'd really be in for the high jump if I got that wrong

[Wanderer]

STOP!! Don't ask them. They will say "YES it includes VAT" and laugh themselves silly. The contract when it comes through, in most cases, will state the rate, ex vat.

WHS! If someone was dumb enough to naively ask me "is that rate Inc-VAT" then I'd say yeah, it includes VAT and then pocket the 20% difference laughing all the way to the pub.

Seriously though, if you are dealing with a VAT registered company (and all agencies will be) the the rates they quote are always ex VAT unless otherwise stated.

[lithium147]

If the client is VAT registered, then they dont care if you charge VAT or not, becuase the VAT you charge them comes out of the VAT they pay the government.

• Client earns 120K (including 20K VAT)
• client owes govt 20K VAT
• Client employs you to do some work
• you invoice client for 12K (inc 2K VAT)
• client now owes govt 20K - 2K = 18K

so you can see that the extra 2K VAT you have invoiced has not cost the client anything.


However, if you are dealing with a company that is not registered, then you will not be able to charge VAT on your invoice to them.
Further more, if you are VAT registered, and the client is not VAT registered, then you will still incur a VAT liability for you 10K invoice. So you will lose out in this case.
But this very unlikely to be the case.

Being VAT registered
PROS:
- you get 20% extra on your invoices which doesn't come out of your account for at most 4 months
if you have an ING direct business acount, you can get 2% on this money. This could work out to be £13 on £2K VAT
- you have option of registering for VAT FRS which means you only pay back about 14% of the VAT
so this is a (almost) 6% bonus. but then you cant claim VAT on expenses (unless over 2K capital purchase)
- you get to learn how VAT works (this practice is used throughout the developed world)

CONS:
- paper work is slightly more. you need to record all IN/OUT VAT transactions. But this is somewhat reduced when you enter the VAT FRS.
- accountancy fees could be slightly more. If your account is submitting your vat returns, thats more work for them. However, it is dead easy, you can do it yourself with the HMRC online web site.

[kaiser78]

I always make sure contract documentation states <date rate + vat> to avoid any doubt. Surprising the number of draft contracts I receive that state <day rate> only.

[EMEAfixer]

However, if you are dealing with a company that is not registered, then you will not be able to charge VAT on your invoice to them.

Authoritatively written, but not correct.

If your place of supply is the UK, then you need to charge UK VAT on your supplies to them, regardless of whether they are VAT registered or not. The only difference is that if they are not VAT registered then you are no longer obliged to provide them with a legal form VAT Invoice, but you still need to have charged the VAT and account for it back to HMRC.

[captainham]

However, if you are dealing with a company that is not registered, then you will not be able to charge VAT on your invoice to them.
Further more, if you are VAT registered, and the client is not VAT registered, then you will still incur a VAT liability for you 10K invoice. So you will lose out in this case.
But this very unlikely to be the case.

Still not hired an accountant yet I see. That's the most dangerous (and grossly inaccurate) VAT advice I've seen yet on this forum.

Truly shocking stuff.

[lithium147]

Ah your right, I explained it wrong.

What happens if you are VAT registered and the client is not is:
They will offer you X per day. That X will be including VAT.
If you say you want to add VAT on top, they wont agree with that, because they could employ some else who is not VAT registered who would accept X as there rate.

[garnet]

Thanks all.
I am learning about VAT. I saw the contract (draft) and the daily rate is exclusive of VAT. So far so good. I will register for VAT from day 1.

Some more noob questions:
If I am VAT reg/ed (not in FRS) this means I can claim VAT on my purchases. So if I have J10 000 income in a month I owe J2000 as VAT.
If I buy something in this same month for J5000 I will need to be credited J1000 as VAT, i.e. I will owe J1000 for VAT.
One the other hand my company's taxable income will be J10 000 - J5000 = J5000 (if no other expences). Then there is the corporation tax etc.
In this example it seems I will have 40% off the price of my purchase. It is too good to be true. Where is the catch?

FRS VAT vs. VAT? Which one is better? Generally.

[northernladuk]

Thanks all.
I am learning about VAT. I saw the contract (draft) and the daily rate is exclusive of VAT. So far so good. I will register for VAT from day 1.

Some more noob questions:
If I am VAT reg/ed (not in FRS) this means I can claim VAT on my purchases. So if I have J10 000 income in a month I owe J2000 as VAT.
If I buy something in this same month for J5000 I will need to be credited J1000 as VAT, i.e. I will owe J1000 for VAT.
One the other hand my company's taxable income will be J10 000 - J5000 = J5000 (if no other expences). Then there is the corporation tax etc.
In this example it seems I will have 40% off the price of my purchase. It is too good to be true. Where is the catch?

FRS VAT vs. VAT? Which one is better? Generally.

Why are you still here asking stupid questions? You cannot learn your business from a free forum and people you don't know.

Get a bloody accountant and speak to him for gods sake. Not only will you learn what you don't know, you will find out what you don't know you need to learn about. Seriously. You run a business now, do it properly.

EDIT : At the very least read the guides. THere is a link called VAT/FLAT RATE VAT in the side links. If you won't put the slightest effort in to helping yourself why should we? And to think you are legally responsible for your ltd's finances

http://www.contractoruk.com/vat/

[captainham]

In this example it seems I will have 40% off the price of my purchase. It is too good to be true. Where is the catch?

The catch is a complete misunderstanding of what VAT is and how it works.

I strongly suggest signing up for some of the free HMRC webinars on this (and other) topics, right around the time you hire an accountant. They're held very regularly.

HM Revenue & Customs: HM Revenue & Customs live webinars

At the very least, watch the pre-recorded ones if you don't attend a live one. They're fairly basic, but certainly not as basic as your current understanding, plus you can ask questions (via text chat) during the live sessions.