Charging VAT to clients?

[Merguez]

I have posted a similar query over on business startups so apologies if you are reading this question twice.

I have just set up as a sole trader offering business services to other businesses. I do not expect that I will earn over the VAT threshold of £77k in the first year, but if things went really well it might happen.

So do I then have to start charging my customers VAT when I wasn't before? Presumably they can claim it back ...

And does the VAT threshold apply to gross earnings, or NET after expenses?
Thanks.

Yes, be aware of the threshold and remember to become VAT registered as soon as you go over it. If you don't you can be fined by hmrc (this is something my dh is facing at the moment).

Yes, you do have to charge VAT but the payees can claim it back if they are VAT registered themselves.

And it relates to gross earnings, not net after expenses.

Thanks Mintyy.

Assuming you are working for businesses that can claim back VAT (note that charities, banks and many other financial services companies cannot) it will be worth registering voluntarily. It is probably also worth incorporating as a company. If your turnover is £50,000pa you could be £4,000pa better off from these two changes.

See an accountant.

Thanks MrA

You can voluntarily register for VAT if you're under the threshold. Sme info from HMRC:

'Benefits of voluntary registration

There are potential cashflow advantages of being able to charge VAT on your sales and claim back VAT on your purchases, which you may benefit from depending on your circumstances. For example:
if you sell zero-rated items and buy standard-rated items you would receive a VAT refund from HMRC
if you have not yet sold anything or don't sell anything during a VAT accounting period, you may still be able to claim VAT back on your purchases
If you're thinking about registering voluntarily, you might want to check the rules for reclaiming VAT on purchases made before registration since it is often possible to reclaim some of the VAT you are charged on goods or services that you use to set up your business.

You can apply to backdate your voluntary VAT registration by up to four years. You will have to account for VAT on any VAT taxable supplies you've made after your chosen date, and you won't be able to reclaim any VAT on your purchases unless you have the right evidence, and meet the other conditions for reclaiming VAT.

If you decide to voluntarily register for VAT, you have exactly the same responsibilities as someone who must register. You must keep all required VAT records and issue VAT invoices. You also have to complete and submit a VAT Return at regular intervals, along with your payment if one is due.'

I'm sure Mr A has some additional thoughts on this.