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I posted this question yesterday regarding how much to charge a client - and by which method (hourly or one-off payment) that I have previously worked with on a non-freelance basis, but I now want to know whether or not I should charge VAT?

I have little knowledge of how VAT works and I understand that there a few factors to be taken into account. First of all, the work I will be doing is office-based, however I plan on working from a satellite office in order to complete the task.

I don't know where to start when trying to work out if/how/when to charge VAT, so thought that I would put my question out there to those who do.

My concerns are:

  1. I am not VAT registered and don't know if I should be if I'm not going to charge VAT;
  2. Can VAT only be applied to certain types of work? (Such as labour, skilled tasks (such as software development), etc.)

Any help with this topic would be wonderful.

  • We need to know your location, what you do, and what you have tried to research. For example, taxes in Canada are handled by the CRA (Canada Revenue Agency). Every country is different. – Canadian Luke REINSTATE MONICA May 15 '14 at 16:32
  • Yes, of course. I am based in London, England (UK) and I work predominantly as a data analyst / Excel expert producing bespoke systems and reports for a variety of clients. – SnookerFan May 15 '14 at 18:42
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After having carried out further research since posting this question, I have learned the following:

  • a company/person must be VAT registered in order to charge VAT;
  • a company/person must register for VAT if turnover reaches a certain threshold (currently £81,000)

At present, my work will not amount to that much which in turn answers my question with a simple "no".

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I have just read your previous thread also. I feel you need some more advice on this.

1) VAT - You can charge VAT 'IF' you are VAT registered. It's also important to know that if you are setup as a Ltd company you can voluntarily register for VAT no matter how much your company earns.

However, for any work your company does (if you register for VAT) you MUST charge VAT at 20%. If you are (which you most likely will be) on the flat rate scheme then 14.5% of the total amount is given to the tax man and you keep the remainder.

eg

you bill £100 which is £100 + VAT = £120

£14.50 goes to tax man £5.50 goes to your company - corporation tax

2) from previous thread - How much to charge

This basically all sounds like you are now contracting. Do you have a Ltd company setup? Business bank account? or are you sticking to freelance?

Don't forget you have to declare ALL income to the tax man and register for self assessment. If you are going Ltd then you need to factor in Corporation tax.

£200 a day sounds very low for your skills. I did a freelance job in Manchester for 4 weeks at £200 a day so London should easily be £300 per day.

3) Be aware of IR35.

4) Get an accountant.

5) Get an accountant

  • just a note about the 14.5%: 1) it used to, and imagine it still does depend on what goods/service you are providing & 2) it is calculated on the inclusive of VAT amount... so in your example it would be £17.40 to the taxman not £14.50 – Lee Tickett Jul 1 '14 at 18:12
  • You don't need to be a LTD company, You can be a sole-trader and voluntarily register for VAT. – Freeing my Lance Nov 17 '16 at 21:41
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You would be advised to to do some research regarding the Flat Rate VAT Scheme, which is a scheme that you can choose to register for if your annual turnover is less than £150,000. It simplifies your VAT calculations significantly. The basic premise is that you charge VAT to your clients for the provision of your services but you cannot claim VAT back on purchases that you make (save, I think, for single items exceeding £2000 - you should verify this separately).

Then, when you complete your VAT return, the amount that you pay to HMRC is calculated using a lower percentage than the standard rate of VAT, and you keep the difference. The actual percentage varies depending on the type of services that you provide. This is to offset the VAT that you have to pay for purchases that you make. If you're going down the limited company route, it's well worth doing, but as @testydonkey mentioned - get an accountant, get an accountant, etc.

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