Discussion
Probably a question best placed with Eric Mc!!
I'm a numpty, I know this (!), but I'm setting up in a consultancy format on my own. A very simple question I'm sure, but VAT would be applicable to my services wouldn't it?
Obviously this is a start-up, and I would not be near the threshold for a good while, but I'd like to establish good practise at the outset, and gear up for the future, make mistakes early on etc, and am seriously considering for VAT at the outset. Can anyone add arguments either way on this subject for my consideration please?
Thanks
David
I'm a numpty, I know this (!), but I'm setting up in a consultancy format on my own. A very simple question I'm sure, but VAT would be applicable to my services wouldn't it?
Obviously this is a start-up, and I would not be near the threshold for a good while, but I'd like to establish good practise at the outset, and gear up for the future, make mistakes early on etc, and am seriously considering for VAT at the outset. Can anyone add arguments either way on this subject for my consideration please?
Thanks
David
If all you customers are VAT registered and you are a supplier then they will be claiming the VAT back as an input tax. Therefore it is in your interest to claim back VAT on 'your' purchases as well, and so is a benefit to you to be registered for VAT, the VAT will make no difference to your customers.
With sensible record keeping a VAT return for a consulancy business can be done in less than a hour.
davidy
With sensible record keeping a VAT return for a consulancy business can be done in less than a hour.
davidy
When I set up my little company offering consultancy/training services I registered for VAT straight away. My main reason being that as I was lucky enough to count some blue chips amongst my clients, and by being a Ltd co and vat registered I thought they might take me more seriously/think I was a proper company not just a one man (woman) band.
Paaperwork isn't that onerous either. Takes me an hour max once a quarter, as I don't make masses of purchases that are claimable.
Paaperwork isn't that onerous either. Takes me an hour max once a quarter, as I don't make masses of purchases that are claimable.
Stephanie/David - thanks for your comments - they pretty much confirm my thinking. As I say I know my Dad does it all himself (paperbased!) for the farm and it's no big problem - he, like me is pretty disciplined so it's no biggie.
Stephanie - I Get your point on going Ltd, and it's an age-old argument. I'm going to start off as a sole-trader and move over at a later date I think. If you have any other pertinent thoughts from your experience that may benefit me, please do contact me.
Stephanie - I Get your point on going Ltd, and it's an age-old argument. I'm going to start off as a sole-trader and move over at a later date I think. If you have any other pertinent thoughts from your experience that may benefit me, please do contact me.
Most of what has been said above covers the main points. If you are mainly supplying services rather than goods, you will normally have to declare a lot more VAT each quarter on your "sales" than you will be able to recover on your "costs". This means, every quarter, you will need to pay something (sometimes quite a lot) to the VAT man.
Normal VAT regulations expect you to account for all the VAT on the sales invoices issued in the quarter (whether all of the invoices have been paid by your customers or not). You can, of course, claim back the VAT on your business costs, whether they have actually been paid or not.
Traders with turnovers under £1.35 million per annum can account for VAT on their sales under the "Cash Accounting" system. This means, the VAT man will only want the VAT on the sales when your customer actually pays. Essentially, you base the VAT on your sales on the amounts you have RECEIVED from your customers in the quarter, rather than the sales invoices issued in the quarter. In this system, you can only claim back VAT on purchases and expense invoices actually PAID in the quarter.
The Cash Accounting system can be useful if you have significant amounts owed to you at the end of the VAT quarter periods as it is rather galling to have to pay VAT on sales invoices your customers haven't yet paid.
Someone mentioned the "VAT Flat Rate Scheme".
Traders whose turnover is less than £137,500 can enter this scheme.
This works very differently to normal VAT. Although you are still required to draw up normal VAT invoices on your sales invoices and show the normal VAT content on those invoices, under the Flat Rate Scheme you do not have to pay over the full VAT calculated on the invoices to the VAT man.
Instead, you apply a Flat Rate percentage which will be lower than the VAT Standard Rate (currently 17.5%). The Flat Rate you use is based on a table of various rates supplied by HMRC. The rate you use depends on what sector of the economy you operate in.
Once on the Flat Rate Scheme, you DO NOT reclaim VAT in your normal everyday business costs, although you are allowed to claim back the VAT on Capital Costs.
Although the Flat Rate Scheme was brought in to make life "simpler" for smaller traders, in actual fact it is full of danger areas and pitfalls and, in my opinion, can be more trouble than it is worth. The important thing is to know exactly that you are operating it correctly.
I can say with 100% accuracy that EVERY business that I have come across that uses the Flat Rate Scheme has been doing it incorrectly - until I put them straight, of course.
Wherever possible, I try to encourage my clients to stick to normal "Accruals" accounting for VAT. I will reluctantly accept that Cash Accounting can be advatageous in certain circumstances.
I don't like the Flat Rate Scheme at all as it contravenes basic principles of accounting and indeed, VAT itself.
I am waiting for Brussels to shut the Flat Rate Scheme system down at some point in the future, it is so flawed.
Normal VAT regulations expect you to account for all the VAT on the sales invoices issued in the quarter (whether all of the invoices have been paid by your customers or not). You can, of course, claim back the VAT on your business costs, whether they have actually been paid or not.
Traders with turnovers under £1.35 million per annum can account for VAT on their sales under the "Cash Accounting" system. This means, the VAT man will only want the VAT on the sales when your customer actually pays. Essentially, you base the VAT on your sales on the amounts you have RECEIVED from your customers in the quarter, rather than the sales invoices issued in the quarter. In this system, you can only claim back VAT on purchases and expense invoices actually PAID in the quarter.
The Cash Accounting system can be useful if you have significant amounts owed to you at the end of the VAT quarter periods as it is rather galling to have to pay VAT on sales invoices your customers haven't yet paid.
Someone mentioned the "VAT Flat Rate Scheme".
Traders whose turnover is less than £137,500 can enter this scheme.
This works very differently to normal VAT. Although you are still required to draw up normal VAT invoices on your sales invoices and show the normal VAT content on those invoices, under the Flat Rate Scheme you do not have to pay over the full VAT calculated on the invoices to the VAT man.
Instead, you apply a Flat Rate percentage which will be lower than the VAT Standard Rate (currently 17.5%). The Flat Rate you use is based on a table of various rates supplied by HMRC. The rate you use depends on what sector of the economy you operate in.
Once on the Flat Rate Scheme, you DO NOT reclaim VAT in your normal everyday business costs, although you are allowed to claim back the VAT on Capital Costs.
Although the Flat Rate Scheme was brought in to make life "simpler" for smaller traders, in actual fact it is full of danger areas and pitfalls and, in my opinion, can be more trouble than it is worth. The important thing is to know exactly that you are operating it correctly.
I can say with 100% accuracy that EVERY business that I have come across that uses the Flat Rate Scheme has been doing it incorrectly - until I put them straight, of course.
Wherever possible, I try to encourage my clients to stick to normal "Accruals" accounting for VAT. I will reluctantly accept that Cash Accounting can be advatageous in certain circumstances.
I don't like the Flat Rate Scheme at all as it contravenes basic principles of accounting and indeed, VAT itself.
I am waiting for Brussels to shut the Flat Rate Scheme system down at some point in the future, it is so flawed.
Eric Mc said:
Wherever possible, I try to encourage my clients to stick to normal "Accruals" accounting for VAT. I will reluctantly accept that Cash Accounting can be advatageous in certain circumstances.
I don't like the Flat Rate Scheme at all as it contravenes basic principles of accounting and indeed, VAT itself.
I am waiting for Brussels to shut the Flat Rate Scheme system down at some point in the future, it is so flawed.
Glad you said that. My accountant advised me away from it for these and another reason and I wondered whether he was right. I took his word for it because I pay him to be right but it seemed that most of most co.s in my field were going the flat rate scheme way.I don't like the Flat Rate Scheme at all as it contravenes basic principles of accounting and indeed, VAT itself.
I am waiting for Brussels to shut the Flat Rate Scheme system down at some point in the future, it is so flawed.
I must say it doesn't seem very 'Brown' to allow what my old employer use to call over-recovery.
I'm VAT registered, not because of the threshold, but because I frequently buy in goods/services that carry VAT and being able to reclaim this is a valuable boost to margin. I must add that my customers are medium-large businesses so the fact they have to pay VAT on my bills is of no consequence. To a lesser extent, if I didn't charge VAT then I could look 'small-time' and lose credibility.
NOTE: If I didn't buy in much stuff and my customers were Joe Public (ie not VAT registered, so my prices were suddenly 17.5% higher), then the reverse would be true and voluntary registration would work against me.
NOTE: If I didn't buy in much stuff and my customers were Joe Public (ie not VAT registered, so my prices were suddenly 17.5% higher), then the reverse would be true and voluntary registration would work against me.
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