As a contractor, you have to account for VAT every quarter. It is possible to accumulate VAT and pay it on an annualised basis, but this is not recommended as the administration burden and cash flow implications don’t suit most contractors.
There is also a flat rate scheme, which may suit some contractors within a certain level and frequency of expenditure. It is also recommended that contractors consult EAFS before considering changing to the flat rate VAT scheme.
In order to complete the VAT returns, contractors must add together all output tax. This is all the VAT they have charged their agency or client in that quarter.
Staying with our previous example, assuming the contractor has billed 5 days at a daily rate of £500 for this time period, the output tax in this invoice is £500 (5 x 400 = 2,000, then £2,500 * 20% = £500 output VAT). This is only an example to show the calculation, typically throughout a time period like this one, contractors would be billing for around 90 days of completed work - totalling thousands with a correspondingly higher VAT total.
Say the contractor bought an ipad for £600 within that quarter. The input tax on the purchase of the iPad is £100 (£600/120*20 = £100.00 input VAT).
The net VAT payable by the contractor’s limited company to HMRC is the output tax, minus the input tax, which works out at £500 – £100 equalling £400.
Imagine how much VAT can be saved when you add up the cost of all your company purchases, including office supplies and equipment. This can amount to a considerable saving and is well worth the time collecting VAT receipts and completing VAT returns.
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.