freelance and VAT
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- trooper
when i used to run a business i was vat registered because many clients requested it, however now im thinking of going freelance should this still be the case?
im hoping not as i hated having to pay the vat man every quarter as it used to mess up cashflow
also would you recommend being a limited company of llp?
and should i get professional indemnity insurance etc?
- PromotionalUseOnly0
i'd recommend getting a second account and paying anyway in there so you've always got it... works as a mental aid too as you're constantly second guessing how much you've actually got it your account.
- babaganush0
Go ltd. I think it gives you a better professional look and if you have a good year should save you lots of tax as you pay yourself a shit salary and take a dividend on your profits (can't remember but think it may be something like 12 % tax).
Go vat registered if you think you'll hit 60-70 k a year as it gets mandatory around there.
- johnnnnyh0
If you're limited you need to get insurance by law.
Limited is OK but there are less tax efficiencies than there used to be. The actual tax saving is more like 1-2% not 12%. There are benefits of being a company and it does look better - but you must file accounts and keep up with company legislation. VAT is mandatory over a certain limit anyway. You could opt for a fixed VAT amount now, which may help cash, flow rather than calculating it each 1/4.- In terms of saving. Ae you talking about corporation tax? I'm talking dividends as a shareholderbabaganush
- babaganush0
If you enter the grey area of 'running a job' dependent upon your status you end up being exposed and liable (in terms of personal assets) if a job fucks up and a client decides to sue.
- babaganush0
In a nutshell - speak to an accountant about your personal circumstances...
- agentfour0
"If you're limited you need to get insurance by law."
for real?? haven't heard that before.....
- HomeCreative0
Go vat registered if your going to hit 40k+ and ask your accountant to put you on the flat rate vat scheme. This way you still charge out 17.5% on invoicing, but you only have to pay the inland revenue 8%. You can do this as long as your not turning over 200k (might be 300k).
Limited company tax is charged at 20% (on gross profit) for small companies, and if your accountant is competent they'll make sure your not liable for any personal tax. Where as if you go self employed you pay 25% of everything.
PS....You dont need insurance by law at all. Professional indemnity is advisable if your in positions where something could go wrong and you could end up with a large bill
- HomeCreative0
Sorry make that 150k for flat rate.....
http://www.hmrc.gov.uk/vat/accou…
- trooper0
but what do clients think about not being VAT registered?
is it an issue?
- thebottlerocket0
Not really an issue, VAT is paid by most orgnaisations so they are all aware of how they operate. I felt a bit funny at first, seeing as my business is just me, but after a few invoices, you get used to it and cleints are never bothered by it.
.....but there is one thing about VAT thats really important.
You pay VAT at different rates depending on your profession/industry. As a creative, not sure what the classification is but you only pay VAT at 10% to the government. However, if you are VAT registered (which is the only way you can charge VAT) you charge clients at 17.5%.
Think ofit this way, for 100k of invoices, you charge £17500 in VAT but pay only £10,000 to Inland Revenue: you keep the £7500.
For a single person business this 2.5% VAT difference more than covers the cost of accountancy.
VAT registration is compulsory for earnings over £50k
- Ah..someone already mentioned this...perhaps I should read the thread first. my Flat rate VAT is 10% though....thebottlerocket
- trooper0
so sayng to a client "no im not vat registered" isnt an issue then?
- HomeCreative0
No its no issue, but we found when we went vat registered, all our clients (especially the accounts departments ) preferred it.
- max_prophet0
If you earn more than 56k you have to be VAT registered.
daft eh?
That's a fact btw