Some newbie VAT qustions

**captainham** · 26 October 2012, 08:46

**Craig@Clarity** · 26 October 2012, 08:50

Your day rate is usually quoted as being EXCLUSIVE of VAT in your contract with your agency (but just double check). If this is the case you invoice them £X day rate + 20% VAT (assuming you're VAT registered too).

Assuming, again, that you're on the standard rate VAT scheme, and you don't have any expenses, the profit in your company will be purely the day rate excluding VAT. Corporation tax is at 20% so the retained profit after corporation tax would be 80% of your net invoice amount. When you invoice your agency for say £1,000 + VAT = £1,200; you collect the £1,200 and pay over £200 to HMRC (VAT man) leaving you with £1,000 in the company as turnover. That £1,000 is then subject to CT at 20% leaving the company with £800 to potentially declare as a dividend.

Consider if you are on the standard rate VAT scheme, looking at the flat rate VAT scheme.

Hope this helps.

**captainham** · 26 October 2012, 08:52

Originally posted by garnet View Post

I am sorry if these have been asked before. And if they sound stupid.
I will be working as a contractor using my own UK based ltd via a agency. I got the daily rate figure (say £X) and have some questions.
When I invoice the agency for the X amount every month do I invoice them plus VAT (i.e. X=X*20%) or this is VAT inclusive (i.e. X=X-(X*20%))?
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 though it is 20% corporation tax and that's it. Where does the VAT come in?
Thanks.

You sound like you could do with an accountant, as it will benefit you in the long run.

**garnet** · 26 October 2012, 09:07

Originally posted by Craig@InTouch View Post

Your day rate is usually quoted as being EXCLUSIVE of VAT in your contract with your agency (but just double check). If this is the case you invoice them £X day rate + 20% VAT (assuming you're VAT registered too).

Assuming, again, that you're on the standard rate VAT scheme, and you don't have any expenses, the profit in your company will be purely the day rate excluding VAT. Corporation tax is at 20% so the retained profit after corporation tax would be 80% of your net invoice amount. When you invoice your agency for say £1,000 + VAT = £1,200; you collect the £1,200 and pay over £200 to HMRC (VAT man) leaving you with £1,000 in the company as turnover. That £1,000 is then subject to CT at 20% leaving the company with £800 to potentially declare as a dividend.

Consider if you are on the standard rate VAT scheme, looking at the flat rate VAT scheme.

Hope this helps.

Thanks a lot. I dont have the contract yet, so I dont know if the daily rate is exclusive of VAT. I will ask/check with them. Otherwise the tax/vat schema you described is quite clear. Thanks again. It seems it greatly depends on weather or not they have given me the daily rate figure with or without VAT.
Just another question re: VAT (from HMRC)

you'll have to register for VAT if either:
your turnover for the previous 12 months has gone over a specific limit - called the 'VAT threshold' (currently £77,000)
you think your turnover will soon go over this limit

What happen if I dont have a previous 12 months. I start now.
This 'think' part is a bit elastic - they might terminate my contract 6 month in, when, say, I have made £76000, or any other possibility.

@captainham - yes, I will have an accountant, sure. Thanks for the advice - I just want to get to know the matter a bit myself. General knowledge if you wish.

**Craig@Clarity** · 26 October 2012, 09:12

Originally posted by garnet View Post

Just another question re: VAT (from HMRC)

What happen if I dont have a previous 12 months. I start now.
This 'think' part is a bit elastic - they might terminate my contract 6 month in, when, say, I have made £76000, or any other possibility.

You don't need to register until your turnover reaches the compulsory registration limit of £77k or you expect it to go over that in the next 30 days. You can ignore the bit about "previous 12 months".

Saying that, there shouldn't be any reason why you can't/don't register voluntarily early. You're not going to lose out financially if you're dealing with another UK VAT registered business, which I'd assume you would be based on the nature of what you're doing.

**Jeremiah@RHJAccountants** · 26 October 2012, 09:12

Just another question re: VAT (from HMRC)

What happen if I dont have a previous 12 months. I start now.
This 'think' part is a bit elastic - they might terminate my contract 6 month in, when, say, I have made £76000, or any other possibility.

You can register for VAT voluntary even if you are below the VAT registration threshold at any time once you have your LTD set up and then you can charge VAT on your sales invoices.

I would also look at the Flat rate scheme as this may benefit you.

**LisaContractorUmbrella** · 26 October 2012, 09:15

Hi Garnet

If you look right you will see that a number of guides are listed that will help you (where is NLUK??) - tax and VAT are absolute minefields if you don't know what you are doing so I would read up by all means but I would also speak to a good accountant sooner rather than later.

Oh and

it's whether not weather

**jmo21** · 26 October 2012, 09:33

Originally posted by garnet View Post

Thanks a lot. I dont have the contract yet, so I dont know if the daily rate is exclusive of VAT. I will ask/check with them.

STOP!!

you might be about to inadvertently cut your rate by 20%.

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.

**garnet** · 26 October 2012, 09:38

Originally posted by jmo21 View Post

STOP!!

you might be about to inadvertently cut your rate by 20%.

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.

Thanks,
That sounds reasonable. I am speculating here since I havent seen the actual contract. I am reading about VAT at the moment, but if anyone wants to give me some tips about that I's appreciate it.
off/ what is the thing about NLUK? Is the the forum's scarecrow?

Some newbie VAT qustions