Q: I started contracting a month ago after being made redundant from my PAYE position. Things are going quite smoothly, but my agency is now badgering me for my VAT certificate. I did not register for VAT because I read that you have to be earning a certain amount (£80Kish?) for VAT to apply. I’m now worried that I am mistaken and the information I read was wrong. Do I have to register for VAT?
Accountant’s Answer: You must register for VAT if your turnover exceeds £85,000. You can still register for VAT if your turnover is less than £85,000, known as “Voluntary registration”.
Once VAT registered you must charge VAT on all taxable sales.
Should you be eligible for the Flat Rate VAT scheme, under certain circumstances you may generate a small profit by charging VAT at a rate of 20% to your clients/customers, but only have to pay across a flat rate percentage on your VAT inclusive sales to HM Revenue & Customs. In essence, by voluntarily registering for VAT, you could potentially increase your company’s profits.
Some agencies/end clients may request VAT details as part of their protocol, as by VAT registering your business, this can be seen as legitimising your company as a business in its own account. You are however not legally required to register for VAT until your turnover exceeds £85,000.
Your LTD company accountant should be able to provide guidance on VAT registration and will assist in the registration should you see a benefit in doing so.