Reply to: Nailed my first Contract

[TBJ]

You can voluntarily register for VAT, it saves a lot of head aches further down the line.

[malvolio]

This makes me nervous, because I always thought it was pretty straight forwards and was about to say 'of course you should register for flat rate VAT (unless there is a specific reason not to)'.

It depends if being VAT Registered prices you out of the market or if you are carrying a significant level of VATable expenses such as hotel bills...

FRS is usually a good idea, but not under all circumstances. You need to do the sums.

[SpontaneousOrder]

I didn't register for VAT until I'd been in business for about four or five months I think. It's serious stuff, VAT. You don't want to mess up your VAT returns, so tread carefully. It's clear there's a lot you don't know, and if you jump in feet first without knowing what you're doing you'll end up in a world of pain.

This makes me nervous, because I always thought it was pretty straight forwards and was about to say 'of course you should register for flat rate VAT (unless there is a specific reason not to)'.

[TheFaQQer]

I will be appointing my wife as a worker of my company to get maximum tax efficency as well as pay myself dividends.

If she is an employee, then make sure you do it right. If she is a shareholder, make sure you do it right.

As its my first contract i have been told that i should get this IR35 checked which i will do using a reputable company (what are the usual charges?).

Some would say that you should get your contract reviewed whether it's your first contract or you hundredth. Unless you know exactly what to look for, then it's a daft idea not to get it done.

My question was really do they know they need to add VAT on top of my normal daily rate or do i need to specifically mention it and have it mentioned on my contract when they send this to me.

Who here knows what your client knows? Make sure the contract is clear whether the rate includes VAT or not, and make sure you invoice correctly, particularly if you are starting work while your VAT registration is still pending.

[northernladuk]

Thanks for the Info, my daily rate is £560 so will easily go above the VAT threshold (initial 6 months contract but can be extended).

Never bank on an extension. The client could walk you on the spot any time during the 6 months so notice periods are pretty worthless and the promise of extensions at this point is just a waste of everyone's time. You are a flexible resource so are at the mercy of timescales and budget which permie's don't tend to be. Assume you will have nothing at the end and if they extend then happy days. Expecting an extension will only end in tears. Could also be a MoO issue as well but not focussing on that just now.

[GillsMan]

Hi,

Thanks for the Info, my daily rate is £560 so will easily go above the VAT threshold (initial 6 months contract but can be extended).

Nope. £560 per day for six months works out at £67,200 based on an average working month of 20 days. So some way short of the threshold to be fair. You may not last the contract duration, never mind what will happen at the end.

I didn't register for VAT until I'd been in business for about four or five months I think. It's serious stuff, VAT. You don't want to mess up your VAT returns, so tread carefully. It's clear there's a lot you don't know, and if you jump in feet first without knowing what you're doing you'll end up in a world of pain.

[northernladuk]

I will be appointing my wife as a worker of my company to get maximum tax avoidance as well as pay myself dividends.

Make sure you understand this fully and do it properly. I am not a fan of this but others will pile in and say do it so your choice but don't go in blindly and assume it's your right to do this.

If you are talking about paying her them make absolutely sure she does enough to warrant it. A bit of book keeping at 8k a year is a joke bearing in mind you pay a professional accountant less than £1500. If she isn't working for the company don't pay her. If you are talking about making her a shareholder then do your research and know what you are doing.

[malvolio]

Hi,

Thanks for the Info, my daily rate is £560 so will easily go above the VAT threshold (initial 6 months contract but can be extended).

I have already spoken to my accountant who will sort out setting up the LTD for me as well as get me VAT registered on the flat rate scheme.

I will be appointing my wife as a worker of my company to get maximum tax efficency as well as pay myself dividends.

I understand how NI/PAYE tax efficency works as my accountant went through this with me (apologises if i had sounded vague earlier).

As its my first contract i have been told that i should get this IR35 checked which i will do using a reputable company (what are the usual charges?).

When i spoke to the internal recruiter they mentioned i would need to log my hours via their internal system which they will then pay me once approved.

My question was really do they know they need to add VAT on top of my normal daily rate or do i need to specifically mention it and have it mentioned on my contract when they send this to me.

Thanks,

All of which tells me you still haven't grasped how much you don't know.

If your client doesn't understand VAT, you are in even more trouble. That rate on a first contract implies you are something either specialist or senior, they will expect you to understand your business*. However, I suggest you read your contract properly: if it is silent on the matter, ask them to confirm that the quoted rate is VAT exclusive.



* The thing every new contractor forgets is that whatever your skills are, being a contractor is now your job. Do it as well as you can.

[Daplayer321]

Hi,

Thanks for the Info, my daily rate is £560 so will easily go above the VAT threshold (initial 6 months contract but can be extended).

I have already spoken to my accountant who will sort out setting up the LTD for me as well as get me VAT registered on the flat rate scheme.

I will be appointing my wife as a worker of my company to get maximum tax efficency as well as pay myself dividends.

I understand how NI/PAYE tax efficency works as my accountant went through this with me (apologises if i had sounded vague earlier).

As its my first contract i have been told that i should get this IR35 checked which i will do using a reputable company (what are the usual charges?).

When i spoke to the internal recruiter they mentioned i would need to log my hours via their internal system which they will then pay me once approved.

My question was really do they know they need to add VAT on top of my normal daily rate or do i need to specifically mention it and have it mentioned on my contract when they send this to me.

Thanks,

[northernladuk]

This advice is dangerously vague. He doesn't need to register or charge for VAT until he comes close to passing the VAT threshold, which is currently £81,000 over a 12 month period. Registering for VAT at this stage would be a waste of time and completely unnecessary burden when he needs to think about more pressing concerns like the legal setup of his company, learning about NICs, PAYE payment thresholds, dividends etc...

But he is losing money if he doesn't. If he goes on the FRS and counts his 1% discount for the first year he can make a bit of money from it.

[glippiglop]

Hire an Accountant?

You need to CHARGE VAT, if you register. Only then will it be paid, on top of your Daily Rate.

This advice is dangerously vague. He doesn't need to register or charge for VAT until he comes close to passing the VAT threshold, which is currently £81,000 over a 12 month period. Registering for VAT at this stage would be a waste of time and completely unnecessary burden when he needs to think about more pressing concerns like the legal setup of his company, learning about NICs, PAYE payment thresholds, dividends etc...

[northernladuk]

Check Cojaks post in the link below. She always links all the useful stuff you need to read up on for starters.. You can find it here...

http://forums.contractoruk.com/welco...ml#post1952321

[northernladuk]

Hi,

I finally got my contract offer, before they send the contract i need to supply them with my business account details and LTD company (not yet set up but will get onto it immediately).

Well done. You have done the easy bit! Now to get your house in order. Before you do anything, get it checked for IR35 using QDOS. Read up so you are vaguely aware of what they are talking about as well. Also while you are speaking to them get your PI/PL insurances. If the contract fails you need to go back and negotiate. If they don't budge then you have the choice of going inside IR35 of walking so everything isn't cast in stone yet.

The agent (direct HR of the client) said they can pay weekly or monthly (which is better ? as i dont mind, are there any tax efficencies with either)?

I understand that when the Client pays me then they need to add VAT on top, so at the end of each week/month they pay me dailyrate worked + VAT, does the Client know they need to do this or do i need to make sure they do this to ensure i dont get shafted with paying the VAT bill myself out of the agreed day rate?

Thanks

So it isn't an agent. An agent is a different company working as an intermediary. It's extremely important you understand these details very quickly as it changes how you deal them. An agent will be taking a cut of your money and know very little so you have to play them hard. If it is direct with the client it's a different ball game. Understand the situation quickly.

Find out what the invoicing period is. If it's monthly you are exposing yourself to about 5 weeks risk if you are paid weekly, up to two months if it's monthly. If its weekly invoicing and weekly payment terms you are only have a couple of weeks risk if they decide not to or can't pay you. Tax wise it doesn't make a difference, it's about exposure and how much of your money they have at any time.

They do not need to add VAT, you need to charge them VAT. Get an accountant and get your level of understanding up very quickly. Day rates are always rate + VAT. It's B2B. If you agree £400 a day they will expect you to charge them £400 + VAT. You also need to get on the Flat Rate Scheme quickly.

You are a business now and are legally responsible for your finances as well as being in charge of your own income so you really need to get up to speed and understand. There is no HR to hold your hand. You are a supplier to them so their HR won't give a hoot and if you start asking too many questions it's going to raise eyebrows.

Time to start reading hard. Use the links to the right and if you have any questions at all use the search method as shown in the link below. Everything you can ever think of and a crap load of stuff you haven't yet encountered has been discussed on here in the past.

http://forums.contractoruk.com/welco...uk-forums.html

[malvolio]

Hi,

I finally got my contract offer, before they send the contract i need to supply them with my business account details and LTD company (not yet set up but will get onto it immediately).

The agent (direct HR of the client) said they can pay weekly or monthly (which is better ? as i dont mind, are there any tax efficencies with either)?

I understand that when the Client pays me then they need to add VAT on top, so at the end of each week/month they pay me dailyrate worked + VAT, does the Client know they need to do this or do i need to make sure they do this to ensure i dont get shafted with paying the VAT bill myself out of the agreed day rate?

Thanks

Based on that question you have no idea how much trouble you are now in. Get an accountant, and read all the First Timer guides you can find (on here, on the PCG website, on most big accountants' websites), before you get into a complete hole.

This is not a game, getting it wrong can be very expensive.

[Scruff]

Hire an Accountant?

You need to CHARGE VAT, if you register. Only then will it be paid, on top of your Daily Rate.