Reply to: Some newbie VAT qustions

[psychocandy]

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.

Completely lost me to be honest. Get an accountant. SERIOUSLY.

[psychocandy]

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.

Is this a wind up?

[psychocandy]

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.

Not being funny but how many agencies turn over less than the VAT threshold or would even choose not to be VAT registered?

[captainham]

Your company can still claim VAT back if on the FRS if it is for a capital asset >£2000 which your example is. Also bear in mind that assets usually aren't immediately deductible against CT in the year of purchase - it's the depreciation per year that is. See, you need an accountant.

Small correction - depreciation is not a deductible expense therefore the affects of this must be factored back into the CT calculation.

You would normally claim an asset against the Annual Investment Allowance in the year of purchase (or just expense if it doesn't really need to be an asset, e.g. £200 PC monitor), therefore it is immediately deductible in full in the year of purchase. The depreciation in subsequent will be added back into the CT calculation as you've already had a 100% deduction for it in the first year.

[Contreras]

Hi garnet,

I suggest you speak to a few accountants, either by telephone or face to face, most are happy to give a free initial consultation so take advantage of this and then choose someone you are comfortable dealing with. Common practice is to pay a fixed monthly 'retainer' for the accountancy services, in reality the bulk of which go towards preparing the year end accounts.

It's nearly always a no-brainer to register with the Flat Rate Scheme. If you do go for VAT registration then apply a.s.a.p. because otherwise you could be in the position of needing to issue an invoice but without a VAT number. You can opt for FRS once the company is VAT registered and it will apply to the current period.

Your company can still claim VAT back if on the FRS if it is for a capital asset >£2000 which your example is. Also bear in mind that assets usually aren't immediately deductible against CT in the year of purchase - it's the depreciation per year that is. See, you need an accountant.

Do NOT ask noob questions about contracting to your agent (like whether the rate includes VAT) or there is a good chance you will be screwed over.

It should state in the contract rate N+VAT. If it just says rate N, then feel free to tell the agent to re-word it to N+VAT.

[lithium147]

It's not that simple, but effectively correct about 40%.
It could even be effectively 60% saving if you pay the 25% on your dividends.
It's the only way that makes buying a mac book pro reasonably priced.
But this doesn't make it right to go and buy loads of toys, as its still your money your wasting.
Also, there are lots of rules about what you can buy and put through the company (without incurring extra taxes).

The items you buy will become assets of the company. If you sell them, you will incur a VAT liability. Also, there is depreciation on the assets which your accountant will need to include in your end of year accounts.

RE VAT FRS:
Unless you are subcontracting the work, its a virtually a no brainer.
I think you can also do this retrospectively.
You should look into the ASAP as you could be losing out right now.
While you are not in the scheme, you could look at buying all the small things that you would not get the VAT back while in the scheme.

I was wondering if you its possible to pay the company accountant 1 or 2 years fees up front before joining the scheme, am sure HMRC have thought of that one..

[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.

[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/

[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.

[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.

[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.

[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.

[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.

[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.

[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.