Tag Archives: VAT

1 in 4 Workers are now Freelancers

How to work freelanceIt seems that there is a national day for everything these days and this week we have National Freelancer’s Day. Freelancing is becoming a more and more common career route, currently about 4.2 million people in the UK freelance; 14% of the workforce. In part this is due to a lack of full time jobs in the market leaving many people with little option but to get by on freelance contracts. Around 1 in 4 people are forced into freelancing after being made redundant from a fulltime job. There are also many people who are forced into freelancing situations by companies who want work doing but are unwilling to hire fulltime staff.

This last freelancing scenario is something HM Revenue & Customs are increasingly clamping down on through their IR35 checks. These are designed to establish whether someone really is a freelancer working for lots of different companies or whether they are conspiring with their employer to avoid National Insurance and Income taxes.

Successful freelancers can earn a lot of money, some reports give an average salary for freelancers over £50,000 per year. Many of those who earn the most from freelancing are professionals with technical skills and industry experience. The highest paid freelancers tend to work in industries likes banking, IT, and engineering.

While the financial rewards of being a freelancer can be high, many freelancers value the extra freedom they have in selecting which jobs they want to take. This does not always translate well to work/life balance though. 1 in 4 freelancers report not taking holidays while 15% say they work more than 51 hours a week.

If you are thinking about going freelance the most straightforward option is to become a Sole Trader. You simply have to register with HMRC as being self employed and then keep track of your business incomings and outgoings. It is a good idea to make the minimum National Insurance contributions (currently £2.65 per week) as you go along. At the end of the year you will have to fill in a tax return and pay tax and National Insurance on the profits from your freelancing. Although many people will be comfortable handling all of this themselves it is a good idea to consult an accountant to double check everything is being done correctly.

Some large companies insist on all of their freelancers becoming limited companies. Becoming limited can be a good decision for some freelancers. The initial set-up fees for a limited company are fairly small, usually under a hundred pounds but you will then need to spend the same again every years getting accounts audited and filed with Companies House. For many people this extra expense will be covered by the greater tax efficiency a limited company can bring. Directors of limited companies can pay lower tax than sole traders and this may be of benefit to some sole traders.

One big decision for many freelancers is whether to be VAT registered. If you are turning over more than £77,000 per year then you have to be VAT registered, below this point it is up to you. It is mainly a good idea to voluntarily register if you are in the Business to Business sector where VAT registration is the norm. Most decent sized companies will expect to be charged VAT on their invoices and by being registered you can reclaim VAT on your purchases. With VAT at 20% this is a potentially huge saving.

Ultimately going freelance is like setting up any business. Unless you already have a steady stream of work coming through you will need to have a marketing plan and consider how you can grow your freelancing business in coming years. Although many people overlook it one of the most important first steps when going freelance is to write a business plan, not least so that you can work out if you are going to earn enough every month to cover the mortgage.

Why your business should not wait to register for VAT

Registering for VAT means that you become an unpaid tax collector on behalf of Her Majesty’s Revenue and Customs (HMRC). Once registered you have to give 20% of the price of any VATable goods or services you sell direct to the government. If you don’t register you get to keep this 20%. So why would anyone bother?

Well the first and most important reason people register is that once you reach the VAT threshold you have to. Currently the threshold is £77,000 of turnover on VATable goods and services in a year. Failure to register at this point means that once HMRC catch you, they will still make you pay the VAT but will also levy a penalty charge on top. This is normally a percentage of the VAT due. The current penalty is a premium on top of your VAT of between 5% and 15% depending on how late you are.

So your business is going to have to register for VAT at some point. You don’t have to wait until you reach the threshold though. You can do a voluntary VAT registration at any point. Many people choose to do this as soon as they start their business. There are a few reasons for this. The main ones are:

  • Being registered for VAT is the norm. All decent size companies have to be VAT registered so if you are not it makes people nervous.
  • As well as paying VAT, you can reclaim VAT if you are registered. So basically you can claim back 20% of anything you buy for your company.
  • Registering for VAT when you are already trading makes the process much more difficult.

The last one of these reasons is perhaps the most important, and most overlooked. To understand why registering while trading can be such an issue you just have to take a look at the official HMRC advice. HMRC say that as soon as you make the application to become VAT registered you have to start paying VAT but you aren’t allowed to charge it on invoices (or reclaim it on payments). Their solution is as follows:

you should increase your prices by an amount equivalent to the VAT rate relevant for your goods or services, and explain to your customers why you are doing so.

Once you receive your VAT registration number you can then reissue those invoices, amended to show your VAT registration number and the VAT charged. This will ensure that your VAT-registered customers may reclaim the VAT that they have paid.

So basically if you try to register for VAT while you are already trading the recommended way to do it is to put all of your prices up by 20%. HMRC currently quote a month for the VAT registration process to take place. Once this month is up you would then have to re-issue invoices for all the sales you have done showing your new high price less the VAT. If you are dealing with business customers who are VAT registered this won’t bother them too much as they will be able to claim back the VAT and will end up paying the same as they always have. However for ordinary retail customers, or non VAT registered businesses, you will effectively be giving them a 20% price rise.

It isn’t hard to imagine the effect that a sudden 20% price hike, and having to redo all of your sales invoices for a month, will have on a new business. As well as potentially hitting overall sales the extra paperwork could be a significant burden. Registering for VAT from the start of you business means that you can maintain your prices at a constant level and avoid the disruption of the registration paperwork.

If you would like to register for VAT you can do it yourself through HMRC or we can do your VAT registration for you.

Selling on eBay? You may need an accountant.

HMRC target ebay sellers Her Majesty’s Revenue and Customs (HMRC) have recently launched a new e-marketplaces campaign targeting people trading on sites such as eBay and Facebook Marketplace. While many online marketplaces including eBay and Amazon will sort out most of the VAT due on sales, HMRC are concerned that some VAT, National Insurance and other taxes may be going unpaid. They are giving people until 14th June 2012 to make a disclosure of their online earnings and until 14th September 2012 to pay up.

Not everyone who sells stuff online needs to worry though. To be liable to pay tax on your online earnings you need to be classed by HMRC as ‘trading’. What this boils down to is whether you are actively seeking to make a profit online. HMRC are not interested in you if you are selling a few personal possessions every once in a while. They are interested in people who are buying products in order to sell them on for a profit, or in people who are offering services for a profit. For those who aren’t sure if they can be classed as ‘trading’ HMRC have created this helpful video:

The current HMRC e-marketplaces campaign is intended as a bit of an amnesty. You can declare any earnings from the last six years and get yourself paid up to date. HMRC point out that if you make a full voluntary disclosure they will not normally prosecute you. The threat being that if you do not declare your online earnings by 14th June HMRC will start to prosecute people, and they can look into your tax affairs for the past 20 years.

If you think you might need to make a disclosure HMRC recommend that you get your business records in order and look for some independent professional advice to help put your case. Why not get in touch with our Legal and Accountancy Services team and get the ball rolling?

If you are an eBay trader and need to register your business our eBay Trader Company Formation will get your company formed and register your business for VAT. 

VAT Rise Causing Hike in Inflation?

inflation in the shadowsAccording to the BBC (Inflation expected to exceed 3%), the return to 17.5% VAT has had an effect on inflation. Inflation has apparently risen over recent months and analysts think that it might well increase further to 3.5%. It’s not all bad news though as the experts predict a drop back to more appropriate levels by the end of the year. Slowly the United Kingdom is coming out of its economic recession and things are starting to look up.

In the mean time to help business people get ahead, here at The Company Warehouse, we are offering inflation beating prices. Our company formation packages start from FREE, so you can take advantage of a professional service to get your new company started and off the ground, but keep costs to a minimum. We’ve noticed a rise in people forming new companies of late and we’re happy to help new start-up’s to get ahead.

If your company needs to register for VAT, we can provide you with a professional service to help you get registered. Take a look at the articles on our blog and VAT Registration FAQ for more information.

Why not register today and see what The Company Warehouse can do for you?

HM Revenue & Customs


HM Revenue & Customs, also known as the inland revenue, is one of the main bodies that any new company will be interacting with on a regular basis. The obvious one will be submitting the yearly accounts. Depending on your company and its legal structure, different tax laws apply. For partnerships, every partner must carry out a self assessment each year, paying tax at a personal rate. Where a limited company is a separate entity and pays taxes in its own right, generally at a lower rate. Outsourcing your accounting to an accountancy service can help ease the burden on a new entrepreneur.

A new company will also interact with HMRC in other ways. Selling goods or services, the company will be expected to register for VAT in order to charge and reclaim for it. There are different levels and rates of VAT, as you can see from our blog article on VAT numbers. Knowing what to charge and what you can reclaim for can be complex, especially if your company offers a mixture of services or products at varying rates.

If you plan to recruit employees to help run your business then you will need to have a payroll system in order to correctly deduct both Tax and National Insurance from their pay to HMRC. As the company grows and you employ more and more people, this will become more complicated and take up more of your time. Our payroll service will take the pressure off, providing a high quality service for as little as £1.89 per employee, per month!

If an employee takes statutory maternity leave, then you might well want to recover the statutory pay you have paid them from HMRC. Reclaiming statutory pay is dependant on several complicated criteria. A good payroll system can help do this for you. Our payroll service takes into account all of a companies potential needs and requirements in this area. Rather than get caught out, you might want to have a look at our blog article on statutory pay schemes to give yourself an idea of what you are legally required to pay employees.