A Contractor’s guide to VAT

There are some zero-rated VAT goods and services – like food, sale of antiques, fundraising, medical care and property licensing – but it is unlikely you will need to worry about these as a contractor. Your accountant will inform you if anything you provide is VAT exempt.

Do I have to register for VAT?

If your turnover exceeds £85,000, or you expect it to exceed £85,000 in the next 30 days, you must register for VAT. Once registered for VAT, you need to begin charging VAT on all goods and services you sell. This applies as soon as you register – you don’t wait until you receive your certificate.

My turnover won’t exceed £85,000 – do I still need to register?

You don’t need to register for VAT if you don’t hit the registration threshold. However, there are still reasons you may wish to register, as it can provide a benefit to your business.

Benefits of VAT registration

Even if you are below the threshold, you may wish to consider VAT registration for the following reasons:

• You can reclaim VAT on goods and services purchased by your company, where you have been charged UK VAT.
• Many clients and suppliers, especially larger ones, will only deal with VAT registered companies. This gives you access to a wider range of suppliers and clients.
• Being VAT registered lends credibility to your business. Your clients and customers can potentially reclaim the VAT you have charged them on invoices.

Downsides of VAT registration

Registering for VAT means that you have to charge VAT on top of your invoices. This means that, if you previously sold a service for £500, you would need to invoice £600 once registered – £500, plus 20% VAT. If your customers aren’t VAT registered, either they will need to swallow the increase or you will need to take a hit to your bottom line.

What do I need to do when I’m VAT registered?

Each quarter you will need to submit a VAT return to HMRC – this can only be done online. This will show the total VAT you have charged to your customers, on goods and services. If registered with a contractor accountant, they will take care of your VAT returns for you.

You will also need to include the VAT you have paid when purchasing goods and services. When VAT registered, it is possible you will be able to reclaim some of the VAT paid. Have a look at our Flat Rate VAT guide for more details.

Once submitted, you will need to pay the difference to HMRC, if your VAT output exceeds your VAT input. If the reverse is true, your company is entitled to a refund.

We hope you found this guide useful. If you still have questions about VAT or would like to know if it is beneficial to register for VAT, please call us on 01442 795 100 or email jaime.thorpe@dolanaccountancy.com.