Reply to: Should you register for VAT is your turnover is less than £85K?

[JohntheBike]

Why do you think it would?

HMRC's skullduggery?

[TheCyclingProgrammer]

Did you mean the OP? I am not on FRS. I think the OP is considering FRS if at all.

Yes, sorry, I thought you were the OP.

[siphr]

Have you checked you aren't caught by the Limited Cost trader rules? Most IT contractors will be, which means you percentage will be 16.5% (15.5% in the first year).

Did you mean the OP? I am not on FRS. I think the OP is considering FRS if at all.

[northernladuk]

"getting VAT registered is a no brainer IMHO"

would registering for VAT when the turnover is less than the thresh hold, then have MTD implications?

Why do you think it would?

[TheCyclingProgrammer]

Apologies, yes you are right, I forgot that for FRS you apply the VAT percent on total income. Also I used 14.5% for FRS as indicated by the OP.

Have you checked you aren't caught by the Limited Cost trader rules? Most IT contractors will be, which means you percentage will be 16.5% (15.5% in the first year).

[JohntheBike]

There's only a couple of reasons to avoid VAT:

• Avoid extra hassle and paperwork (This is frankly minimal if you have a proper accountancy service)
• If most of your trade is to other non-VAT registered customers
• I suppose if you really have, literally, no VAT-reclaimable expenses

Most contractors have accountants who will deal with VAT with minimum fuss, deal predominantly B2B and will incur at least some expenses.

I've never bothered with Flat Rate, so I won't comment on that specifically but getting VAT registered is a no brainer IMHO.

"getting VAT registered is a no brainer IMHO"

would registering for VAT when the turnover is less than the thresh hold, then have MTD implications?

[wattaj]

It is? With FA it's so simple I haven't even had to put enough through in to it to notice it's a PITA... erm.. if that makes sense.

I may be biased. I've had several years of VAT hassles and end-of-year, correcting payments. That may change now that I'm using FA, but I've still to go through a full year with this service.

[siphr]

Unsure how you got to these numbers, but I think it's far worse than that.

Assuming limited cost trader, and let's give benefit of first year 1% discount, it'd be £90 vs 15.5% of £540 = £83.70. So £6.30/day.

Without first year 1% discount, it's £90 vs 16.5% of £540 = £89.10. So literally just 90p/day.

Once out of the first year, from a financial perspective FRS virtually never works out better. Some people still prefer it as it means they don't have to worry about whether VAT was charged on that £3 sandwich/whatever.

Apologies, yes you are right, I forgot that for FRS you apply the VAT percent on total income. Also I used 14.5% for FRS as indicated by the OP.

[Maslins]

What that means is that on a day rate of 450 on normal vat HMRC will expect a VAT of £90, and on FR HMRC will expect a VAT of £66. so that is £24 / day and for a month that is about £528.

Unsure how you got to these numbers, but I think it's far worse than that.

Assuming limited cost trader, and let's give benefit of first year 1% discount, it'd be £90 vs 15.5% of £540 = £83.70. So £6.30/day.

Without first year 1% discount, it's £90 vs 16.5% of £540 = £89.10. So literally just 90p/day.

Once out of the first year, from a financial perspective FRS virtually never works out better. Some people still prefer it as it means they don't have to worry about whether VAT was charged on that £3 sandwich/whatever.

[siphr]

Hi All,

I'm currently contracting as an IT professional and am looking at voluntarily applying for the VAT flat rate scheme.

I would be paying a flat rate of 14.5% based on the work I'm doing.

I understand that I would not be able to claim back any VAT on purchases, but should make some money back through the difference of my flat rate vs 20% I'm receiving with my invoices.

My question is, is it worth me even applying for VAT? Am I missing something here that I will later regret? I spoke to my accountant friend who said never apply for VAT if you don't have to. He said you always end up paying more tax but I can't figure out how/why.

I know there's more paperwork involved but that doesn't worry me.

What do you guys think?

In my experience, registering for VAT is beneficial if you have costs. You can offset part of your expense in most cases so that it comes out of VAT, so you save more. The is no longer any great benefit of Flat Rate Scheme unless your costs are very low, I believe. What that means is that on a day rate of 450 on normal vat HMRC will expect a VAT of £90, and on FR HMRC will expect a VAT of £66. so that is £24 / day and for a month that is about £528. (When you are not in on a contract and you still have VAT on your expenses you could claim these back on normal VAT for a refund I am not sure that can happen on FRS). So you need to check if that is worth it for you or not. Hope that helps.

NOTE: Retaining the above comment for posterity but for correct FRS charge and savings have a look at @Maslins comment.

[northernladuk]

VAT is a PITA; avoid if you don't actually need to have it

It is? With FA it's so simple I haven't even had to put enough through in to it to notice it's a PITA... erm.. if that makes sense.

[Maslins]

I spoke to my accountant friend who said never apply for VAT if you don't have to. He said you always end up paying more tax but I can't figure out how/why.

This only tends to be true if your clients are end consumers (not registered for VAT themselves).

If you'll be selling to VAT registered businesses, you'll virtually always benefit financially (though perhaps only marginally) by registering for VAT. The client will reclaim VAT you charge them. Therefore the only financial relevance is you can either:
- reclaim VAT on your business costs, or
- pocket a bit of your output VAT via the FRS.

NB I'd anticipate if you were to join the FRS it would be as a limited cost trader, so 16.5%, potentially with a 1% first year discount. Also be aware the FRS is on the gross invoice value.

It does lead to a bit of extra admin, but if you're using something like FreeAgent and are fairly good at admin, should be straight forward.

[Eirikur]

VAT registration is hardly any extra paperwork
If the answer to some of the below is Y it's probably worth register for full VAT (not flat rate)

Regularly staying in hotels?
Having restaurant meals (or just fast food) when staying away
Making lots of mileage?
buying a laptop every 2 -3 years for your company?
Having mobile in your company name?
other expenses, parking, printers, printer cartridges, paper, postage etc etc

[vwdan]

There's only a couple of reasons to avoid VAT:

• Avoid extra hassle and paperwork (This is frankly minimal if you have a proper accountancy service)
• If most of your trade is to other non-VAT registered customers
• I suppose if you really have, literally, no VAT-reclaimable expenses

Most contractors have accountants who will deal with VAT with minimum fuss, deal predominantly B2B and will incur at least some expenses.

I've never bothered with Flat Rate, so I won't comment on that specifically but getting VAT registered is a no brainer IMHO.

[wattaj]

...I'd post an example FYI if I could work out how to use this antiquated forum software...

Ah... "You may not post attachments".