Tax is a slightly scary area. I’ve been reading a lot about VAT lately, primarily to make sure I’m fully compliant with all UK laws in the matter, but also to determine how to maximize my income.
As of April 2008, you don’t need to charge VAT until your company has brought in £67,000 of revenue in a year. (Note: you can check the latest figures from the relevant page on the HM Revenue & Customs site).
Once you have registered for VAT, the procedure is fairly simple – you add VAT to any invoices you send people, (eg. you add 17.5% to a bill for IT support services). Once people pay you the VAT, you keep it in a separate account from the main revenue you’re earning.
You also need to keep a log of anything you buy on behalf of the company that has a VAT charge (most equipment).
When the time comes to hand over the VAT to the tax office, you simply take the money you have saved in your special VAT account, subtract the amount of VAT you have paid on purchases, and send the remainder to your tax office. If you’ve actually spent more than you’ve collected then you can claim it back from the tax man.
You are allowed to register for VAT before your income exceeds a threshold £67,000, but until you’re about to reach that threshold, it’s optional. You might like to register if you know you’re going to be buying a lot of essential equipment for your business and want to claim back the VAT.