Others have commercial arms or other group companies that can be VAT registered, so this contractor advantage can be limited. When invoicing clients, contractors simply bill their day rates to the client and nothing more.
A charity could afford to employ someone full-time for the savings it would make over a year when hiring a non-VAT registered contractor. VAT will also be charged on most expenses, apart from some travel and subsistence that is zero rated. Assuming they submit a quarterly return, VAT registered contractor limited companies would have invoiced some VAT during the quarter, and would work out how much VAT was included in the expenses and deduct this amount from the money owed to HMRC.
The above expenses are fairly modest, so in practice it is possible to make more substantial VAT savings by being VAT registered. There is still a perception in the minds of some clients that a company with sales below the VAT threshold is too small to do business with. If you look ahead and estimate that you will reach the threshold within the next 12 months, you can register at any point before you actually reach the threshold but you must register within 30 days of hitting the mark.
Any goods or services not VAT-rated must not be included in the figure. When you register for VAT, you have a choice of three schemes, which vary in their reporting and payment requirements:. You have to report these figures and pay any money to HMRC even if the invoices have not been paid. However, before you register, you cannot apply charge VAT to your invoices even if the product or service is VAT rated. If you do, you will incur a penalty charge from HMRC. By the same token, if you are registered and you do not charge VAT when it applies, you will also incur a penalty.
When you issue invoices, it does not matter if your customer is not VAT registered. Related: VAT in the food industry. You must pay the supplier the full amount shown. You record this on your VAT return as input tax and claim a refund. However, if you buy supplies from a non-registered company, you should not receive a VAT invoice and you must not pay any VAT shown incorrectly on the invoice, even if the items are VAT-rated. HMRC has a range of penalties relating to registration and charging.
You must be aware of the key dates for registration so that you meet their requirements. Your Effective Date of Registration EDR will be determined based on whether you applied to register directly before or after you surpassed the threshold.
If you fail to apply at the right time, you risk penalties for late registration. If you registered Penalty rate. Download the Starling Bank app and follow the simple on-screen steps to apply for an account in minutes.
Our Privacy Notice sets out how the personal data collected from you will be processed by us. What are the benefits of being VAT registered?
Maintaining up to date records will provide better information for running your business. Talk to your accountant about the exact details. If you are in a VAT reclaim situation then you will definitely be better off.
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