VAT payment question with limited company

[JonSmile]

just need to be a bit careful as I had one person working at our place who managed to screw it all up.

Signed a contract for his agreed £500 a day and did not see that the Flipping agent had put it as £500 inc VAT and not £500 +VAT as all normal contracts are.

Taught him to read the small print before signing

[expat]

I've just had a worrying thought its probably nothing but let me get your opinion on it.....

I haven't used a limited company in years, I've always gone via an umbrella so VAT payments have always been done for me.

Now with my new contract I am earning say, £500 / day and I've just set up a new Limited Company.

I remember many moons ago using a limited company that the end client essentially paid the VAT in addition to the £500 / day that I received i.e. I paid my income tax only on the £500 / day and then the end client/agency would then put a further £87.5 / day (17.5% VAT) into my company account and that would pay for the VAT on my earnings.

Question is how can I check that I haven't had the wool pulled over my eyes and have ended up paying say both VAT (17.5%) AND income tax (say basic at 25%) on the £500 / day that I earn ? i.e. I whopping great (17.5% +25%= 42.5% !!), surely this isn't possible !!! the contract would not even be worth it surely !!!

I know it sounds ridiculous and paranoid and you would think that the end client would pay for my VAT because they can simply claim it back I guess but please enlighten me.

After I get your advice I will ask my accountant/ agency about this if I have any doubts. I know that some of you will say 'why didn't you read your contract before signing', well put it this way, I was asked to sign my contracts / papers at the agency site and lets just say there were 50 pages + of documents to sign and I couldn't really check it over thouroughly enough there and then (yes a bit unconventional it was, the usual ploy to not allow you to give you time to question and check out the signing the legally binding documents !).

You are not "earning", you are invoicing. If your Ltd Co is registered for VAT, then your Ltd Co invoices 500 per day plus 17.5% VAT; and the client pays that to your Ltd Co.

Not "end client", just "client", = whoever your Ltd Co has a contract with, and therefore sends invoices to.

Nobody just puts extra money into your company bank account (I wish!); what they do is pay the invoices. The invoices must include VAT as appropriate (i.e. as an extra sum on top of the rate). And yes, if you have agreed a billing rate of 500 per day, it will be understood that you will add VAT on top of that in the invoice. That is after all not for the agency or client to decide: it's the law.

[Spacecadet]

Possibly. Save yourself a tenner a day or so.

more than that... there is also the time saved in not having to work out the VAT which can be reclaimed

[Manic]

Daft question here. Would the OP benefit from using Flat Rate Scheme here?

Possibly. Save yourself a tenner a day or so.

[Manic]

VAT is paid for by the end consumer, so if you charge £87 in VAT they claim it back, assuming they are VAT registered too.

[pmeswani]

If your Ltd is VAT registered, then you add VAT on top of your £500 invoice. The agency* pays you the full amount of £587.50, the first thing you do is whip off that £87.50 and send it to the VATman. Then you do your tax calcs on the remaining £500 as before.

*who will have charged VAT on their inflated amount to the end client, who will have charged their customers etc, so don't feel bad about it.

Daft question here. Would the OP benefit from using Flat Rate Scheme here?

[TheBigYinJames]

Its not an umbrella company that I am using now. its a Limited company hence my question, I haven't used one in ages ....

If your Ltd is VAT registered, then you add VAT on top of your £500 invoice. The agency* pays you the full amount of £587.50, the first thing you do is whip off that £87.50 and send it to the VATman. Then you do your tax calcs on the remaining £500 as before.

*who will have charged VAT on their inflated amount to the end client, who will have charged their customers etc, so don't feel bad about it.

[eliquant]

Its not an umbrella company that I am using now. its a Limited company hence my question, I haven't used one in ages ....

[BrilloPad]

The umbrella will have claimed VAT and passed into onto HMRC. If they have not passed it on it is their lookout - VAT are not to be messed with.

Have you received all your payments from umbrella? If so - why are you concerned. If not - get onto them and find out why.

[eliquant]

I've just had a worrying thought its probably nothing but let me get your opinion on it.....

I haven't used a limited company in years, I've always gone via an umbrella so VAT payments have always been done for me.

Now with my new contract I am earning say, £500 / day and I've just set up a new Limited Company.

I remember many moons ago using a limited company that the end client essentially paid the VAT in addition to the £500 / day that I received i.e. I paid my income tax only on the £500 / day and then the end client/agency would then put a further £87.5 / day (17.5% VAT) into my company account and that would pay for the VAT on my earnings.

Question is how can I check that I haven't had the wool pulled over my eyes and have ended up paying say both VAT (17.5%) AND income tax (say basic at 25%) on the £500 / day that I earn ? i.e. I whopping great (17.5% +25%= 42.5% !!), surely this isn't possible !!! the contract would not even be worth it surely !!!

I know it sounds ridiculous and paranoid and you would think that the end client would pay for my VAT because they can simply claim it back I guess but please enlighten me.

After I get your advice I will ask my accountant/ agency about this if I have any doubts. I know that some of you will say 'why didn't you read your contract before signing', well put it this way, I was asked to sign my contracts / papers at the agency site and lets just say there were 50 pages + of documents to sign and I couldn't really check it over thouroughly enough there and then (yes a bit unconventional it was, the usual ploy to not allow you to give you time to question and check out the signing the legally binding documents !).