VAT (Value Added Tax) may seem like a dreaded topic you’d rather not think about as a contractor or freelancer, but with a little help from the Gorilla Accounting team, you’ll find that it’s really much simpler than you might have thought – and that the benefits far outweigh any such complications. We’ve assembled 4 quick and great reasons why you should register for VAT if you’re self-employed – as soon as possible.
- 1.Reel in Bigger Fish
It sounds like a silly notion, but being VAT registered genuinely gives clients and other contractors the impression that you’re a much bigger operation than they may have thought had you not been registered – which gives them more security when taking on your services. It also means that you can aim for bigger clients who can easily afford to pay the additional VAT amount.
- 2.VAT Can be Claimed Back
If you’re registering for VAT after trading for a short time already, you may be put off at the thought of adding extra fees to your own costs. Don’t worry! Clients who are VAT registered can claim back on the VAT they pay – as you can too – meaning the cost is absorbed and the VAT is a formality. For those clients who aren’t registered, you can adjust their fee to absorb the VAT charge.
- 3.Prevent Growing Pains
Every small business, contractor or freelancer generating over £81,000 of revenue in 12 months must register for VAT – but it can be applied for voluntarily below this threshold – which is something we always recommend to our clients. One reason why it’s particularly business savvy is that you’re preparing for any future growth; by adopting good habits with VAT early on, it’s less of a shock to the system and you’ll avoid any awkwardness around adding VAT to your clients’ fees.
- 4.VAT Can Work for You
If registering before the threshold, you’re eligible to be placed on the Flat Rate Scheme – a scheme introduced by HMRC to simplify SME accounting for businesses generating less than £150,000 a year. Rather than the standard 20%, a Flat Rate Percentage is applied to your gross sales (these differ depending on trade). Every quarter at Gorilla Accounting we total our clients’ sales from the previous 3 months, multiply the figure by the FRP and pay the amount to HMRC. Any difference between the VAT and amount paid is retained by the business as profit – meaning you have more funds to use as dividends. It’s a win-win!
