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18-10-2017, 09:49   #1
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I'm convinced this isn't right.

I know of a one man band type company (consultant) who charges VAT on invoices to their sole customer.

He has legit registered for VAT and has a VAT number. But there is no way in this world he is going to hit the VAT threshold (83k) in terms of earnings.

Therefore the VAT he's collected presumably won't be paid to the VAT-man, and they won't chase him for it because it's not due.

Does he just pocket the money?...What happens to it? Or rather what should happen to it?

Is it just a crafty way to give himself a substantial pay rise?
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18-10-2017, 09:51   #2
Cyclone
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If he's registered for vat then he has to charge it and pay it.
The threshold is the point at which you HAVE to register for vat, but if you voluntarily register then charging and paying VAT is not an optional thing.

Edit - it's not clear if you know the rate he's charging, but it wouldn't be unusual for an IT consultant to pass the threshold whilst working for a single client.

If he works for 46 works a year, 5 days a week at a rate of 360/day then he'll reach that threshold.
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Last edited by Cyclone; 18-10-2017 at 09:54.
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18-10-2017, 10:15   #3
smithy266
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You do not have to have a minimum turnover to register for VAT, just that if your turnover is 83 k, or whatever the limit is, you MUST register. He will still have to complete regular VAT returns, so don't worry, as far as I know, he is legit.
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18-10-2017, 15:30   #4
Chez2
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Here are the finer details of when you do and don't register for VAT, threshold etc:

https://www.gov.uk/vat-registration/when-to-register
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22-10-2017, 23:38   #5
Lastnet IT
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You can register for VAT voluntarily (even when below the aforementioned threshold). Many businesses do, for many reasons, especially if they sell things on top of providing services. I.E. to claim VAT back on purchases you have to be VAT registered, so if you're selling goods, it sometimes makes sense to voluntarily register for VAT so you can claim the VAT back on the purchase price. This is especially true when a company is dealing exclusively with business and private sector customers (who can themselves claim the VAT back).

You'll know if he is VAT registered, as he has to give you a VAT invoice with a valid VAT number. See here: http://www.legislation.gov.uk/uksi/1.../part/III/made

If he's VAT registered, he's paying VAT! (or will be facing the consequences of not doing so).

Last edited by Lastnet IT; 22-10-2017 at 23:47.
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23-10-2017, 14:41   #6
lobster
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Strictly speaking if he only has one customer then he is technically an employee of that company and should be on their payroll
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23-10-2017, 14:51   #7
Chez2
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Quote:
Originally Posted by lobster View Post
Strictly speaking if he only has one customer then he is technically an employee of that company and should be on their payroll
I think that only applies if he can't pick and chose whether to work or not and he isn't allowed to work for / offer services for other companies. I don't know the finer points but the guidance is here:

https://www.gov.uk/government/collec...-self-employed

https://www.gov.uk/employment-status...yed-contractor
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24-10-2017, 18:37   #8
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Quote:
Originally Posted by lobster View Post
Strictly speaking if he only has one customer then he is technically an employee of that company and should be on their payroll
That's complete nonsense.

When I hire a plasterer, they have only 1 customer for the days that I'm hiring them. But I don't become their employer and that's true even if I hire them through my company.
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25-10-2017, 08:32   #9
Chez2
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Quote:
Originally Posted by Cyclone View Post
That's complete nonsense.

When I hire a plasterer, they have only 1 customer for the days that I'm hiring them. But I don't become their employer and that's true even if I hire them through my company.
You are not comparing like with like Cyclone. A plasterer will not only ever work for you will they? They will go on to do other jobs. If you look at the HMRC definition quite a few people currently working as self employed should be an employee. Have a look at the link further up the thread I added for the definition.

The thread seems to have drifted off the VAT issue though.
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25-10-2017, 10:29   #10
Cyclone
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Nobody said "ever" with regards to the OP either. The OP says "sole customer", which is pretty much how most consultants or IT contractors work, sole customer at a time, from weeks to years, but not for ever and without employment.

I'm very aware of IR35 legislation since it directly affects me. I've worked for a single client for 15 months now, but that doesn't make me an employee.
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25-10-2017, 10:53   #11
Chez2
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Quote:
Originally Posted by Cyclone View Post
Nobody said "ever" with regards to the OP either. The OP says "sole customer", which is pretty much how most consultants or IT contractors work, sole customer at a time, from weeks to years, but not for ever and without employment.

I'm very aware of IR35 legislation since it directly affects me. I've worked for a single client for 15 months now, but that doesn't make me an employee.
You seem to misunderstand something unless you are being deliberately obtuse. Your post talks about a plasterer working for you.....the plasterer would have to work just for you and not be allowed to work elsewhere if they choose to be classed as an employee, hence me saying you are not comparing like with like, its not a good example to use. You seem to be missing the point stated in the guidance.

If you are not allowed to work for anyone else during that time, depending on the other criteria, as detailed in the guidance, you could be classed as an employee. I don't know your full T&Cs of your contract. There are several such cases been highlighted in the news recently where people have had to set up as self employed when they should be employed.
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07-02-2018, 13:35   #12
DC81
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Late to thread but ...... Could be to do with FRV, have you heard of this ?

Not sure if the rules have changed on it, but it is/was offered to make VAT accounting easy for small businesses.

You charge 20% to client you pay 15% to HMRC

The 5% difference was to allow for your purchase of tools, equipment, premises or any other expense

A consultant could in theory only need their knowledge and expertise, a laptop, maybe some trade body subs, insurance or whatever so let's say that eats 2% of the benefit

On 60k revenue, that's an extra 1800 freed up, so if they're a director of their own ltd. company that could equate to 1350 in pocket that year !

Not bad going for some inherently easy accounting !
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07-02-2018, 13:45   #13
Chez2
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Quote:
Originally Posted by DC81 View Post
Late to thread but ...... Could be to do with FRV, have you heard of this ?

Not sure if the rules have changed on it, but it is/was offered to make VAT accounting easy for small businesses.

You charge 20% to client you pay 15% to HMRC

The 5% difference was to allow for your purchase of tools, equipment, premises or any other expense

A consultant could in theory only need their knowledge and expertise, a laptop, maybe some trade body subs, insurance or whatever so let's say that eats 2% of the benefit

On 60k revenue, that's an extra 1800 freed up, so if they're a director of their own ltd. company that could equate to 1350 in pocket that year !

Not bad going for some inherently easy accounting !
What you have written doesn't seem to match the guidance. It might be the way you have phrased or I have misunderstood what you have written. Here is the link:

https://www.gov.uk/vat-flat-rate-scheme
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07-02-2018, 14:24   #14
DC81
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You're right, badly phrased details not correct, was just trying to illustrate how I thought said "consultant" might be looking to achieve increase in real world income.

Looked into this in 2014 at suggestion of a friend, he gave me examples of how it worked in his industry. No good for me, but still seems credible... If you found yourself in an advantageous position within your deemed category ?

Suppose other reasons for VAT reg could be insistence of a client / middleman maybe with the option of using their "umbrella scheme" instead of going through the paperwork. Had that one pulled on me a few times, but that's another story....
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08-02-2018, 12:32   #15
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Quote:
Originally Posted by DC81 View Post
Late to thread but ...... Could be to do with FRV, have you heard of this ?

Not sure if the rules have changed on it, but it is/was offered to make VAT accounting easy for small businesses.

You charge 20% to client you pay 15% to HMRC

The 5% difference was to allow for your purchase of tools, equipment, premises or any other expense

A consultant could in theory only need their knowledge and expertise, a laptop, maybe some trade body subs, insurance or whatever so let's say that eats 2% of the benefit

On 60k revenue, that's an extra 1800 freed up, so if they're a director of their own ltd. company that could equate to 1350 in pocket that year !

Not bad going for some inherently easy accounting !
But if you are living away during the week you will be in hotels - that's VAT on the hotel you cannot recover. You cannot recover it on books (which are VAT-ed if electronic or if they have software), nor on subsistence etc...

The flat rate scheme used to be good but it's less valuable than before..
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08-02-2018, 13:21   #16
DC81
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And that's why it was no use to me, I book my own hotels and have a serious gadget / tool habit !

If I was a skinflint, and only worked in Yorkshire though.....

I'll give you the example.... Security firm, lads all held their own licence, used own vehicles, radios belonged to clients. No need for premises. Turnover just below limits.

All it left was uniforms bookkeeping and some small incidentals.

This was in 13/14 though, maybe that was back under old more generous rules ?
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11-02-2018, 09:01   #17
Cyclone
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Quote:
Originally Posted by Obelix View Post
But if you are living away during the week you will be in hotels - that's VAT on the hotel you cannot recover. You cannot recover it on books (which are VAT-ed if electronic or if they have software), nor on subsistence etc...

The flat rate scheme used to be good but it's less valuable than before..
It's very much less valuable since they adjusted the rates.
In IT at least there is absolutely no advantage to gain anymore.
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07-05-2018, 11:29   #18
fill
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did he do the job you wanted for the price quoted and was the work acceptable? do you think the deal was reasonable or better?
then why should you worry about his financial dealings they are after all none of your business.
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07-05-2018, 21:30   #19
Cyclone
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Quote:
Originally Posted by Chez2 View Post
You seem to misunderstand something unless you are being deliberately obtuse. Your post talks about a plasterer working for you.....the plasterer would have to work just for you and not be allowed to work elsewhere if they choose to be classed as an employee, hence me saying you are not comparing like with like, its not a good example to use. You seem to be missing the point stated in the guidance.

If you are not allowed to work for anyone else during that time, depending on the other criteria, as detailed in the guidance, you could be classed as an employee. I don't know your full T&Cs of your contract. There are several such cases been highlighted in the news recently where people have had to set up as self employed when they should be employed.
Slightly late response to this, but in case anyone else is confused by it, you've got it wrong.
The test for employment involves very much more than just exclusivity.
I routinely work exclusively for a single client, as would a plasterer, not by contractual enforcement, but just by the nature of taking on a contract to work a professional day, 5 days a week. This on it's own is definitely not enough to make you 'employed'.
The cases you refer to, mostly the BBC, have many more factors involved, some of the key ones being no right to supply an alternative person to do the work, lack of control over how they work, in the case of the BBC they were also issues with corporate control over holidays and such like, in effect they were treat like employees, and that is what makes someone an employee.

Anyway, what lobster said was completely wrong. Having a single client most definitely doesn't make you employed.

And what the OP had assumed was wrong as well, if the business was registered for VAT as described then HMRC very much would be expecting to be paid the VAT and not paying it would be VAT fraud, which they're quite keen on prosecuting. Highly unlikely that he could get away with it, since the business would have to file annual accounts.
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Ask yourself, what would Chuck Norris do?
Youtube videos, snowboarding, climbing, bad drivers.
https://www.youtube.com/channel/UCmn...qpXEZMGnJHf3Wg

Last edited by Cyclone; 07-05-2018 at 21:33.
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09-05-2018, 17:49   #20
Jeffrey Shaw
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One reason for voluntary VAT registration: in order to recover VAT paid out ('Input Tax').
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