Reply to: VAT registration newbie questions

[Lance]

+ vat

this conversation is about to get circular.....

yes, + VAT. But you can claim that back if you're on standard rate VAT.
Hence why FRS doesn't work in year 2 without the 1% discount.

[pr1]

try a local accountancy firm. They'll then quote you £1,000, then you'll realise that £100 p.m. (minus the £25 you'll save) is better value.
And some of the accountants (most) in the sticky are less than £100. I use Gorilla @ £85.

+ vat

[Lance]

Many thanks for suggestions so far.

I am having difficulties justifying paying for the full accounting services when I know I can do the bulk of the work myself. Honestly, it is not a biggy, the software does most for you so I end up spending around an hour every month on it.

Anyone aware of a good accountant who would be willing to do consultancy/hour based services rather that full blown 100+/month type of a service? All I am after is some solid help getting started with Vat and then later with year end accounts.

try a local accountancy firm. They'll then quote you £1,000, then you'll realise that £100 p.m. (minus the £25 you'll save) is better value.
And some of the accountants (most) in the sticky are less than £100. I use Gorilla @ £85.

[Franklin09]

Many thanks for suggestions so far.

I am having difficulties justifying paying for the full accounting services when I know I can do the bulk of the work myself. Honestly, it is not a biggy, the software does most for you so I end up spending around an hour every month on it.

Anyone aware of a good accountant who would be willing to do consultancy/hour based services rather that full blown 100+/month type of a service? All I am after is some solid help getting started with Vat and then later with year end accounts.

[Lance]

You don’t include CapEx in the low-cost business calculation so this won’t make a difference.

https://www.tax.service.gov.uk/check.../cost-of-goods

sigh.....

we've already established what FRS rate should apply.
The cost of a computer may swing the decision on whether to use FRS or not.

[Ploptimus]

(it's close, and do you want a new computer/laptop?).

You don’t include CapEx in the low-cost business calculation so this won’t make a difference.

https://www.tax.service.gov.uk/check.../cost-of-goods

[Lance]

You see, for the past 9 months (started contracting in December 2018) I have been happily using FreeAgent for all my accounting matters (invoices, expenses, dividends, salary, etc...). All well and good and extremely simple. Now, it is the time to register for VAT as I will be going over £85,000 around October (if during the course of any 12 months, your ‘taxable supplies’ exceed the VAT registration threshold, you are legally obliged to register for VAT). I am pretty sure I can handle VAT returns too.

I appreciate that it all depends and different people/companies have different situations/needs/other factors, etc... but my case is dead simple: steady contract with ~£9,000 invoiced every month (£450/day) with expenses: train (~£550/month) and car mileage (~£180/month). That's it. There is no other factor/twist to it.

I have had a couple of bad experiences with two different accountants who effectively tried to give me a piece of bad advice (one related to dividends, one related to company share splitting between me and my wife). I might be getting an accountant in the end but I still would like to get a good understanding of how different VAT scheme work and which one would be more appropriate for my case.

Much appreciate all your comments and help.

if you're already pay £25 a month for FA, then use an accountant who provides FA for free, and consider that a £25 a month discount. .

And you are right about the FRS rate, so with an accountant you'd want to be on standard rate afer the first year, and possibly for the first year (it's close, and do you want a new computer/laptop?).

[Craig@Clarity]

Hi Franklin,

Sounds like you're going to go over the VAT threshold so you can voluntarily register for VAT before you get there or wait until you get to 85k. If your client/agent is VAT registered then it'll have no financial consequence to them. You charge them 20%, they'll reclaim it.

You're using freeagent so it'll handle all the calculations and submissions for MTD whether you decide to go flat rate or not at 16.5% btw. 1% discount in the first year of VAT registration. There's no VAT on train travel and minimal on mileage so if you like it nice and simple, go flat rate based on the figures you've given.

[Craig@Clarity]

Computer and IT consultancy or data processing – 14.5%

I'm pretty sure a software developer will be in that classification

If you are doing your own books, get free agent is a great help and there is ways to get it for free...

I'm afraid this is incorrect advice. OP will be a limited cost trader at 16.5% in this scenario

[Ploptimus]

I am now in my second year, vat registered since the beginning. Similar scenario to you on the numbers, majority of expenses is mileage/train where there is no Vat. Did flat rate for the first year to get the 1% reduction, have now changed to standard, to keep my accountants busy Note that the flat rate of 16.5% is on gross so it is pretty much 20%. If you have an accountant then then the extra admin work for standard should be their burden anyway. As an IT contractor you will struggle to not be limited cost which you will see from your costs, they are near zero Vat, unless you are eating out at 5* restaurants every lunchtime.

[Franklin09]

This isn't the best route. Many of us just use our accountants for this. There are very few people go alone. I can only think of two or three that post on here do their own. You do right to ask in this section but just remember this is a site for contractors asking other contractors their opinions. What you need is tax advice which is slightly different.

We do have some very knowledgeable people that post and a few accountants so maybe just hang on and one of them will post. Sometimes the question is far too woolly for them to stick their neck out and give advice so if no one pops up then your question is probably lacking in detail.

For what it's worth I registered for VAT straight away and it appears to often be the standard route. Your figures appear to fall right in to an 'average' contractor set up so I can only summarize you follow the route than nearly all of us already do.

Here are some pretty comprehensive article which I believe will answer your question.

IT contractors' Flat Rate VAT guide for April 2017

Much appreciated.

Indeed, I am in no rush and will definitely stick around. Look forward to hearing what other people think and what their recommended approach to my situation would be. Whether I go with those recommendations or not is a completely different matter.

[northernladuk]

I see what you are saying regarding bad advice. I wouldn't just go with the first piece of post somebody puts in here. I am planning to check this with few other contractors, I might check with another accountant too. But at the end of the day, I need to understand this and be clear about the rules and how it all works myself. I thought that this is the whole point of the Accounting/Legal section on this forum - so people can ask questions, get some opinions and then make up their mind.

I wonder if anyone here

This isn't the best route sometimes. Many of us just use our accountants for this. There are very few people go alone. I can only think of two or three that post on here do their own. You do right to ask in this section but just remember this is a site for contractors asking other contractors their opinions. What you need is tax advice which is slightly different.

We do have some very knowledgeable people that post and a few accountants so maybe just hang on and one of them will post. Sometimes the question is far too woolly for them to stick their neck out and give advice so if no one pops up then your question is probably lacking in detail.

For what it's worth I registered for VAT straight away and it appears to often be the standard route. Your figures appear to fall right in to an 'average' contractor set up so I can only summarize you follow the route than nearly all of us already do.

Here are some pretty comprehensive article which I believe will answer your question.

IT contractors' Flat Rate VAT guide for April 2017

[Franklin09]

Are you really sure about this? Have you taken in to account the changes in April 2017 where most of us have become a limited cost trader and will be charged 16.5%?



Clearly not. Even the OP has corrected you.

Really crap advice as usual.

OP. CryingSheep has shown you how bad it is to get advice from a bunch of contractors when you are trying to do your own books. Further evidence that an accountant for the first year who you can bleed dry of information is a much better bet.

Yes, 16.5% sounds more appropriate from the information I have gathered so far.

The GOV.UK tool ( Enter your VAT return details ) gives me 16.5% too. I enter 120,000 as "turnover for the year including VAT" and I enter £0 as "cost of goods for the year including VAT" (as I cannot enter travel expenses). And this is what I get:

Use the 16.5% VAT flat rate. Based on your answers, you are a limited cost business. This is because the cost of your goods for this year was under £1,000.

I see what you are saying regarding bad advice. I wouldn't just go with the first piece of post somebody puts in here. I am planning to check this with few other contractors, I might check with another accountant too. But at the end of the day, I need to understand this and be clear about the rules and how it all works myself. I thought that this is the whole point of the Accounting/Legal section on this forum - so people can ask questions, get some opinions and then make up their mind.

I wonder if anyone here, in plain English, can explain the pros and cons of different VAT schemes based on this scenario:

- company founded/contract started in December 2018, so far no VAT registration
- steady income with ~£9,000 invoiced every month (£450/day)
- expenses: train (~£550/month) and car mileage (~£180/month).
- £85,000 threshold will be hit around October 2019

[northernladuk]

With the amount of expenses you mention you should definitely go flat rate (you have 1% discount in your fist year).

For 100k income you would charge 20k vat (100 X 20%) and you would have to pay back only 17.4k (120 X 14.5%) or 16.2k (120 X 13.5%) with the 1% discount in the first year. This will represent an 'extra income' of 2.6k or 3.8k if you register for VAT...

Are you really sure about this? Have you taken in to account the changes in April 2017 where most of us have become a limited cost trader and will be charged 16.5%?

Computer and IT consultancy or data processing – 14.5%

I'm pretty sure a software developer will be in that classification

Clearly not. Even the OP has corrected you.

Really crap advice as usual.

OP. CryingSheep has shown you how bad it is to get advice from a bunch of contractors when you are trying to do your own books. Further evidence that an accountant for the first year who you can bleed dry of information is a much better bet.

[Franklin09]

If you don’t bother with an accountant then flat rate at least for the first year.
With an accountant, it depends on the cost of the accountant as to whether you go flat or standard.
Second year standard.
Probably.

Get an accountant.

You see, for the past 9 months (started contracting in December 2018) I have been happily using FreeAgent for all my accounting matters (invoices, expenses, dividends, salary, etc...). All well and good and extremely simple. Now, it is the time to register for VAT as I will be going over £85,000 around October (if during the course of any 12 months, your ‘taxable supplies’ exceed the VAT registration threshold, you are legally obliged to register for VAT). I am pretty sure I can handle VAT returns too.

I appreciate that it all depends and different people/companies have different situations/needs/other factors, etc... but my case is dead simple: steady contract with ~£9,000 invoiced every month (£450/day) with expenses: train (~£550/month) and car mileage (~£180/month). That's it. There is no other factor/twist to it.

I have had a couple of bad experiences with two different accountants who effectively tried to give me a piece of bad advice (one related to dividends, one related to company share splitting between me and my wife). I might be getting an accountant in the end but I still would like to get a good understanding of how different VAT scheme work and which one would be more appropriate for my case.

Much appreciate all your comments and help.