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VAT advice for the self employed

As you may know, Value Added Tax (VAT) is added onto nearly every purchase anyone makes in the UK – whether you’re buying a bottle of wine from the supermarket or a new laptop, you’ll be paying VAT.

A business making less than £79,000 (2013) annually does not have to register for VAT. This means as a small company with a small turnover your products and services might be less than a VAT registered competitor.

If you are VAT registered you'll need to complete a return each quarter. When you complete your VAT return you tell HM Revenue and Customs how much VAT you have charged and how much you have paid. HM Revenue and Customs are hoping you'll charge more than you pay and will need to make a payment to them.

Basically, if you are buying lots of stock or good to run your company that have VAT added it's probably best to register. However if you don't, it's probably not worth the hassle and administration. 

Special note: There could still be a very good reason to register for VAT even if you don't meet the threshold or buy lots of goods - some people believe having a VAT number adds a certain credibility and prestige to their company, also some clients will only work with other VAT registered suppliers. Bear this in mind when making your decision. If you still can't make your mind up you can always call us and we'll be more than happy to help.  

If you'd like to speak to one of our self employed accountancy experts, call 0500 234 111.

The Flat Rate VAT Scheme

Instead of registering for the standard VAT scheme (outlined above), it may be more beneficial for you to register for the Flat Rate VAT scheme.

Within this scheme, you charge your clients at the standard rate and pay the government at a lower rate of the gross amount. Different sectors have different rates (call us to find out what rate you might be in). 

Find below an example for an IT professional whose flat rate is 12% in their first year (new companies get a 1% first year discount):

Amount you invoiced -                      £50,000 plus VAT £8,750
Total amount received -                   £58,750
VAT paid to HMRC -                          £58,750 * 12% = £7,050
(flat rate example of 12%)

The difference between the VAT invoiced (£8,750) and the flat rate paid back to HMRC (£7,050) is yours to keep as profit!

£8,750 - £7,050 = £1,700

You’ll need to speak to an accountant before you decide which scheme is best for you. They’ll be able to work out the most tax efficient way to pay VAT.

How to register for VAT

There are two ways to register for VAT:

1. Online – visit HMRC’s website.
2. Post – you can get the relevant written forms from your accountant

Registering online is much simpler and means that you won’t need to change your VAT process in the future. Get the advice of an accountant before you register.

Changes to VAT in 2010

There are plenty of changes to be aware of in 2010! Make sure you check with your accountant to work out how these changes could affect you.

1. VAT change from 15% to 20%

From January 1st the standard VAT rate will change from 15% to 20%. Make sure that any invoices you raise after this date have the new VAT rate added. One complication to be aware of is that, if you raise an invoice for any work carried out in December, you can still charge at the previous rate of 15%.
If you’re on the Flat Rate VAT scheme, there will be some changes to your flat rate. Make sure you check with your accountant as to any relevant changes in January before you submit a VAT return.

2. Online VAT returns

If you haven’t yet registered for VAT you’ll be required to register and submit your future VAT returns online. This is really simple on the HMRC online services website but your accountant can take you through step by step.

If you’ve already registered for VAT, and you haven’t already done so, you’ll need to start thinking about submitting your VAT returns online. As of April 2010, if your yearly turnover exceeds £100,000 you’ll need to register for online VAT returns in April. Those of you that have a yearly turnover under £100,000 can continue to submit paper returns but will eventually need to submit online.

3. Paying VAT

As of 1st April 2010, those who are VAT registered will need to start paying their VAT electronically. With the online system HMRC have developed this is relatively simple however if you’re in any doubt do speak to your accountant.

For more advice on how Easy Accountancy can help you and business, or to find out more about our fixed fee packages, please call 01442 275767 or email newbusiness@easyaccountancy.co.uk.

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Why Clients Choose Easy Accountancy

Easy Accountancy offers a low cost, fixed fee accountancy package with all clients receiving their own dedicated, friendly, approachable accountant.

All of our accountants specialise in providing accountancy services to the self-employed, freelancers, sole traders, small to medium sized limited companies and private individuals. All accountants are employees of Easy Accountancy and we never outsource or offshore work.

Our low cost, all-inclusive fixed-fee accountancy service includes unlimited access to your own dedicated accountant throughout the year and covers all your business and personal tax affairs needs.

All our accountancy services include:
  - Unlimited access to your accountant
  - Ongoing advice on how to manage your business
  - Proactive tax advice throughout the year
  - Updates and reminders so you'll never miss a deadline
  - Free bookkeeping software

As a sole trader our fees start at just £60 + VAT a month, for this you receive the above plus:
  - Completion of your Self-Assessment tax return
  - Advice on how much Income Tax to pay
  - Guidance on National Insurance contributions

As a limited company our fixed fee packages are bespoke to your needs, however typically you’ll receive the above, plus:
  - Completion of your year end accounts*
  - Completion and submission of your annual return Companies House
  - The director/s Self Assessment tax return
  - Payroll bureau
  - Dividends and corporation tax computations

We’ve saved our clients up to half on their accountancy bills – if you’d like a quote, click on the quote me button to the right of this page. Alternatively, call us on 01442 275767 or email newbusiness@easyaccountancy.co.uk.

*If you would like us to complete your company year end accounts we simply ask that you have been a client of Easy Accountancy for one year or have made 12 monthly payments.