VAT, or Value Added tax, is a sales tax added to the price of most goods and services in the UK. Many goods and services attract VAT, however, many financial services and items such as books and journals are zero-rated. By becoming VAT registered, contractors working through their own limited company have the potential to save a significant amount of money
Any limited company that has a gross income of £77,000 per year, known as the VAT threshold, must register for VAT or risk being heavily fined. Any contractor who works for a company turning over less than the threshold can also voluntarily register for VAT. For many contractors, this is well worth considering.
As part of our service to contractors, Euro Accountancy & Finance Services will process your VAT returns for you. All that you need to do is send your paperwork in and we will do the legwork – including filling in your on-line return. Simply check the paperwork and pay the VAT via electronic transfer or direct debit when the return is filed.
Contractor Invoices – Output Tax
Output tax relates to the VAT charged on goods & services. As a contractor registered for VAT, when you prepare and issue your invoices you must add VAT at the set rate for that financial year. As an example, when invoicing your client or agency for 5 days work at a daily rate of £500 and tax rate of 20%, the invoice would be set out as follows:<
VAT at 20% the calculation = £2,500*20% = £500
Total including VAT = £2,500 + £500 = £3,000
At the end of every quarter, you as the contractor must add up all the output tax that you have charged your clients. Then you must take away any input tax (see below) and pay the balance to HMRC using the VAT on-line returns system.
Contractor Purchases – Input Tax
The opposite is also true. Alongside Output tax is Input Tax. Whenever your contracting limited company buys goods and services, the cost of these purchases will include someone else’s VAT; charged at 20%. To you as the contractor, this is called input tax.
As an example, if you buy an iPad for £600 and the supplier at the rate has charged the VAT set for the financial year, then you as the contractor can offset the VAT on this purchase against any VAT you have charged clients.
As a further example, the VAT element of a laptop is £600/120*20 = £100.00, which means the price of the laptop excluding VAT is £500.00
Think about how much VAT could be saved when you add up the cost of all your company purchases, including office supplies and equipment. This can amount to a considerable sum and is well worth taking time to gather VAT receipts and returns for, in a professional opinion.
Other VAT Services & Pages
Why Choose EAFS?
- We are Payroll Experts: We have major experience in Europe and hold all necessary licences for distributing payroll across the EU.
- Value for Money: Our fees are highly competitive and very reasonable, especially compared to other firms.
- We are on top of the Latest EU Developments: The legislation for the European Union is constantly changing, we stay up to date with all developments to provide the most legally compliant service at a competitive price.