Reply to: Basics of VAT

[SueEllen]

Different people will have opinions on the benefits of registering for VAT. The plain truth is being registered for VAT opens you up to a VAT inspection at any time.

They are nothing to be afraid of if you calculate your VAT correctly.

[oracleslave]

The plain truth is being registered for VAT opens you up to a VAT inspection at any time. I dont think the 'benefits' of being VAT registered are worth it so I deliberately maintain my income below the VAT threshold.

That seems an extreme way of dealing with the small chance of a VAT inspection. If you're not turning over more than 70k just go permie.

[BolshieBastard]

No, not at all. The mileage allowance is an expense; the only time it will have a VAT implication is if the cost of your mileage will be chargeable to your client in which case you would add it to your sales invoice (hours multiplied by rate) and then apply VAT to the total.

You can also reclaim the VAT element on fuel even if you are on a mileage allowance from your co.

[BolshieBastard]

Thank you for the replys guys

So on the figures I gave you, Would it be worth registering VAT?

What would be the benefits? if any?

Different people will have opinions on the benefits of registering for VAT. The plain truth is being registered for VAT opens you up to a VAT inspection at any time. I dont think the 'benefits' of being VAT registered are worth it so I deliberately maintain my income below the VAT threshold.

You can register for the flat rate scheme which on your income will give you marginal benefit. Alternatively you could register for the 'cash accounting scheme' but this entails far more work.

As I said, I dont think its worth the benefit but that's just me opinion.

[VectraMan]

I wrote an interesting and intelligent reply earlier, and then somebody disconnected the Midlands from the internet.

I always used to claim 2p per mile VAT, or the maximum amount that I had receipts for which was generally a little less (even at 35mpg - but probably not with today's fuel prices). I don't know if that's changed. The VAT office told me I could also claim a proportion of repairs and servicing costs as well.

But like most I realised I was better off on the FRS.

[DaveB]

What he meant to say was 250miles * £0.40 = £100, which will reduce your CT liability by £21 per week.

Until you've done 10k miles in the year and then its £0.25 per mile.

Oops

[Scrag Meister]

If you do 250 miles that week at 40p per mile you will claim 250*0.4 = £10 back from your Ltd in travel expenses and the companies CT liability will be reduced by £10*0.21 = £2.10

What he meant to say was 250miles * £0.40 = £100, which will reduce your CT liability by £21 per week.

Until you've done 10k miles in the year and then its £0.25 per mile.

[DaveB]

oh right i see now.

so my next question is, where does the money come from the petrol expences if i was using say "paystream accounting services"?

as in their hand book it says 40p per mile can be claimed if using a 2 litre car.

Travel expenses are not an extra income, unless you are charging them to your client and they are paying them. What they are is an offset against the amount corporation tax to be paid.

40p per mile is the standard HMRC rate for the first 10,000 miles covered in any one financial year. After that it drops to 25p per mile until the start of the next year.

You bill the client for a weeks work. You then deduct your salary, Employers NI, Employers Pension Contributions if any, employee expenses reimbursed and any other operating expenses. Your Ltd then pays CT on whats left at 21% (IIRC)

If you do 250 miles that week at 40p per mile you will claim 250*0.4 = £10 back from your Ltd in travel expenses and the companies CT liability will be reduced by £10*0.21 = £2.10

[LisaContractorUmbrella]

I was using paystream umbrella service, Then I started a ltd company. Because Paystream made a few errors with my pay
So i decided to just invoice the agency everyweek ( third week of trading as a ltd company).

You still need to learn the basics so that you don't make any accounting errors that could end up being costly - your accountant should offer some sort of help; most of the big contractor firms have downloadable guides which should teach you all you need to know for your first few months.

[gareth01422]

I was using paystream umbrella service, Then I started a ltd company. Because Paystream made a few errors with my pay
So i decided to just invoice the agency everyweek ( third week of trading as a ltd company).

[LisaContractorUmbrella]

oh right i see now.

so my next question is, where does the money come from the petrol expences if i was using say "paystream accounting services"?

as in their hand book it says 40p per mile can be claimed if using a 2 litre car.

It doesn't come from anywhere unless you are recharging it to the client. If you are entitled to claim mileage you can claim 40p per mile which is offset against your earnings thereby reducing your tax liability - this reduces to 25p per mile after 10,000 miles in each financial year. If you have already appoionted an accoutant you really should have been made aware of these basics.

[gareth01422]

oh right i see now.

so my next question is, where does the money come from the petrol expences if i was using say "paystream accounting services"?

as in their hand book it says 40p per mile can be claimed if using a 2 litre car.

[LisaContractorUmbrella]

Right ok,

So in effect I would be a collector of VAT, IF I was VAT registered.

So does the petrol allowance work the same way as the ink and paper example?

Gareth

p.s thanks again for all the info

No, not at all. The mileage allowance is an expense; the only time it will have a VAT implication is if the cost of your mileage will be chargeable to your client in which case you would add it to your sales invoice (hours multiplied by rate) and then apply VAT to the total.

[gareth01422]

Right ok,

So in effect I would be a collector of VAT, IF I was VAT registered.

So does the petrol allowance work the same way as the ink and paper example?

Gareth

p.s thanks again for all the info

[ctdctd]

Therefore in that quarter the amount that you would pay would be £367.50 - £22.19 = £345.31


HTH

Or using the flat rate scheme in Lisa's example, pay the VAT man 13% of gross invoice = £320.77 and no nasty VAT accounting required