Apologies if this has been discussed, only my 2nd post and looking for opinions/help.
How many Ltd drivers out there are putting VAT on their invoices to their agencies. From asking this question to various accountants they seem to be split as to whether this is ok or not. Im on a flat rate VAT payment which the accountant set up of 10% to HMRC, whilst im charging 20% VAT to the agency. Basically it gives me an extra £50 in the skyrocket every week, or a 10% pay rise if you want to look at it like that.
I know this is not an accountants forum, but how many of you fellow drivers are doing this?
Well if you are earning in excess of £73,000 a year you must by law register for VAT and charge appropriately for it on your invoices, Ltd company or sole trader. If you are earning less than the VAT threshold which I strongly suspect you are then you do not need or really should be adding VAT to invoices. If you are adding VAT then you will have to pay that to HMRC less any VAT you have legitimately paid out for your business. You cannot profit from VAT so be very careful because they do and will check at some point and HMRC are not ones to be messed with - I KNOW!!!
You will have to explain that a bit more ?. You can’t pocket half of the VAT, you will end up in prison. How do you reach the VAT registration threshold ?. have you done a VAT return yet?. This sounds very odd.
Yep I agree, with most of your points and it has been worrying me to be honest, my accountant is a Tax Assist franchise, has been going quite a while and has many hgv drivers using him in the Rugby area. I am earning less than the threshhold, but he advised me it would be benifitial for me to register for VAT, and charge VAT to the agency, as he could get me onto the flat rate payment scheme of 10% to HMRC. Believe me I have gone round and round in circles with this and its doing my head in! I have made returns on the flat rate 10% for 12 months now without a problem, so its not as if im not paying the Vat which is due. He has my invoice totals off me every 3 months, tells me how much I owe, and I pay it.
Spoke with the agency and roughly half of the Ltd drivers on their books are doing the same thing!
Spoke to HMRC helpline 3 times to 3 different people and got 3 different answers
In all honesty being a play it safe type I will probably de-register from the VAT to be on the safe side. However from what I can gather many Ltd drivers are doing this.
Ex Haulier:
You will have to explain that a bit more ?. You can’t pocket half of the VAT, you will end up in prison. How do you reach the VAT registration threshold ?. have you done a VAT return yet?. This sounds very odd.
No, it’s perfectly legal, it’s HMRC’s method of simplifying vat returns. The supplier charges vat at 20% then pays the vatman at the lower rate (which varies with each industry - IT consulting for example is 13.5% in the 1st year then 14,5%, not too sure what category drivers come under as it’s quite a long list). The idea is that the supplier does not claim vat on all of their smaller purchases (which would normally be offset against what they charge the customers), hence simplifying the paperwork. You can only claim vat back on larger purchase (I think it’s over £2000 at the moment).
It’s one of the reasons why many small businesses don’t register because they think they then have to keep a vat receipt for absolutely everything they buy, but as they cannot offset their vat on purchases it makes it a lot simpler and is certainly worth it if you are supplying larger companies as they claim back the vat they have paid you - the scheme is only open to companies with a turnover below £130,000.
Also the threshold is £73,000 on turnover, not wages.
Whatever the nature of your business, if you make any supplies of staff, they are normally regarded as being made in the course or furtherance of your business. You must account for VAT at the standard rate.
There are a few exceptions to this rule, where supplies of staff are not always made in the course or furtherance of business and thus may be outside the scope of VAT. These include:
secondments between and by government departments which require specialist knowledge that cannot be obtained from the private sector;
secondments between National Health bodies; and
some secondments between local authorities and by local authorities where they have a statutory obligation or monopoly.
If you supply staff to any person who belongs outside the European Community (EC) or to a business belonging in another member state of the EC, that supply is outside the scope of UK VAT.
If you receive supplies of staff from a person who belongs outside both the UK and the Isle of Man, you must account for VAT on those supplies at the standard rate under the ‘reverse charge’ procedure (Notice 741 Place of supply of services).
Warwicktrucker:
Apologies if this has been discussed, only my 2nd post and looking for opinions/help.
How many Ltd drivers out there are putting VAT on their invoices to their agencies. From asking this question to various accountants they seem to be split as to whether this is ok or not. Im on a flat rate VAT payment which the accountant set up of 10% to HMRC, whilst im charging 20% VAT to the agency. Basically it gives me an extra £50 in the skyrocket every week, or a 10% pay rise if you want to look at it like that.
I know this is not an accountants forum, but how many of you fellow drivers are doing this?
Cheers Paul
VAT registration is compulsory when you reach the £73,000 turnover threshold,however I believe it is voluntary below that figure.
Flat Rate Scheme
If you use standard VAT accounting, you have to record the VAT on every sale and purchase you make. You could simplify your VAT accounting by using the Flat Rate Scheme if both of the following are true:
your estimated VAT taxable turnover - excluding VAT - in the next year will be no more than £150,000
your estimated total business income - including VAT - in the next year will be no more than £191,500
If you use a Flat Rate Scheme, you don’t have to keep a record of the VAT that you charge on every sale or pay on every purchase. You calculate your VAT payments as a percentage of your total VAT-inclusive turnover.
Once on the scheme you may continue to use it to account for VAT until your total business income exceeds £230,000.
This link will give you the percentage of your gross income you should pay to HMRC
I think that you are OK to do what you are doing but you should make sure you are using the correct percentage as you are only supplying labour and not a vehicle etc.
Ex Haulier:
You will have to explain that a bit more ?. You can’t pocket half of the VAT, you will end up in prison. How do you reach the VAT registration threshold ?. have you done a VAT return yet?. This sounds very odd.
No, it’s perfectly legal, it’s HMRC’s method of simplifying vat returns. The supplier charges vat at 20% then pays the vatman at the lower rate (which varies with each industry - IT consulting for example is 13.5% in the 1st year then 14,5%, not too sure what category drivers come under as it’s quite a long list). The idea is that the supplier does not claim vat on all of their smaller purchases (which would normally be offset against what they charge the customers), hence simplifying the paperwork. You can only claim vat back on larger purchase (I think it’s over £2000 at the moment).
It’s one of the reasons why many small businesses don’t register because they think they then have to keep a vat receipt for absolutely everything they buy, but as they cannot offset their vat on purchases it makes it a lot simpler and is certainly worth it if you are supplying larger companies as they claim back the vat they have paid you - the scheme is only open to companies with a turnover below £130,000.
Also the threshold is £73,000 on turnover, not wages.
As above, ^^^^^^^^^^^^^^^^^^^^
Its a right little earner, 10% of your invoice stays in your pocket, its a no brainer !!!
brados:
You cannot profit from VAT so be very careful because they do and will check at some point and HMRC are not ones to be messed with - I KNOW!!!
Rubbish. People providing a service virtually completely to VAT registered businesses with very few VAT claimable expenses are in an ideal position to make money on VAT by using the flat rate scheme.
Ex Haulier:
You will have to explain that a bit more ?. You can’t pocket half of the VAT, you will end up in prison. How do you reach the VAT registration threshold ?. have you done a VAT return yet?. This sounds very odd.
Of course you can. You can voluntarily register for VAT at any amount. The threshold is merely one where you have no choice but to register.
Go learn about the flat rate VAT scheme. For transport, the rate is 10%. VAT is still charged at 20% but you cannot claim VAT on expenses, only the flat 10%. So you charge VAT at 20% but pay HMRC at 10%. You get to pocket the difference.
I’d be very wary of using the flat rate scheme as a sole trader driver. The flat rate scheme is set up to make paperwork easier for small buisness’ , its not been set up for people to make money from the VAT scheme. ‘most’ will be invoicing just a few companies in all reality and not have complex paperwork issues going out to mass amounts of customers. In any event, it doesn;t matter what anyone here thinks, just hope it all stands up to scrutiny if you’re ever called in to explain.
Mike-C:
I’d be very wary of using the flat rate scheme as a sole trader driver. The flat rate scheme is set up to make paperwork easier for small buisness’ , its not been set up for people to make money from the VAT scheme. ‘most’ will be invoicing just a few companies in all reality and not have complex paperwork issues going out to mass amounts of customers. In any event, it doesn;t matter what anyone here thinks, just hope it all stands up to scrutiny if you’re ever called in to explain.
Mr VATman was very understanding when I applied, he asked a few questions, was unable to find “freelance HGV Driver” under any listings, so, he said, I`ll put you down as “Logistics”, and that will be 10% for you and 10% for us
I have to say thats the best advice I can give to anyone who doesn`t understand how VAT works.
Also for the sake of repeating myself everytime a question like this arises, if anyone wants to know how VAT works, book yourself onto a free course run by the HMRC business education and Support Teams http://www.hmrc.gov.uk/bst/ 0845 6032691 and in particular the couse titled “How VAT works”
Other courses are available inc:
Becoming a director
Setting up a limited company
PAYE & NI contributions
End of year and benefits in kind are run towards the end of the tax year
They are free courses held in various regional venues and last aproximately 2hr - 2 1/2hrs tea/coffee are provided free.
I can testify that I learned a good deal of useful info by attending the courses listed above
Conor:
Go learn about the flat rate VAT scheme. For transport, the rate is 10%. VAT is still charged at 20% but you cannot claim VAT on expenses, only the flat 10%. So you charge VAT at 20% but pay HMRC at 10%. You get to pocket the difference.
10% for Transport, When youre just a Driver and no Truck to claim as your own, How could you claim the VAT allowance as a Transport company?
If you are charging a company direct then you will probably be asked by them to be vat registered as it means they can then claim it back in turn - the vat registration number is the important bit. There’s nothing wrong with a sole trader being vat registered, it’s just more likely that a Ltd Co. driver would do it as part of setting up the business as there is more paperwork involved, though that’s the whole point of the flat rate scheme, to make it simpler. Just make sure you know what you are doing - I know of one IT trainer who was registered in the flat rate scheme but was also trying to claim back vat on everything he purchased (because it hadn’t been explained to him properly) - a definite no-no & I think he had his vat registration taken away completely.
Conor:
Go learn about the flat rate VAT scheme. For transport, the rate is 10%. VAT is still charged at 20% but you cannot claim VAT on expenses, only the flat 10%. So you charge VAT at 20% but pay HMRC at 10%. You get to pocket the difference.
10% for Transport, When youre just a Driver and no Truck to claim as your own, How could you claim the VAT allowance as a Transport company?
That’s one of the main points of the flat rate scheme - it’s for small companies that have to charge vat but don’t have enough vat’able expenses to make it worthwhile. If you had a truck to run then there’s a good chance you’d be over the threshold and possibly up to the flat rate limit so you’d be paying standard rate vat.
Mike-C:
I’d be very wary of using the flat rate scheme as a sole trader driver. The flat rate scheme is set up to make paperwork easier for small buisness’ , its not been set up for people to make money from the VAT scheme. ‘most’ will be invoicing just a few companies in all reality and not have complex paperwork issues going out to mass amounts of customers. In any event, it doesn;t matter what anyone here thinks, just hope it all stands up to scrutiny if you’re ever called in to explain.
Heard something along those lines before, which is what my main worry is. My accountant says its not really a loophole but a grey area which some drivers are taking advantage of. Im not a sole trader but a LTD company. To the letter of the law a Haulage company can take advantage of the flat rate scheme and pay 10%. The grey area is whether as a LTD company driver you qualify as a haulage company, yes im a company working in the haulage business, but dont have my own truck. Spoke to him this afternoon and to his knowledge no LTD company drivers have had any trouble with doing this at this stage, however he did warn me that that may well change, as it is down to the Revenues interpritation of their own rules in the future.
Worst case scenario is the VAT man says you dont qualify as a haulage company and should’n’t have been on a flat rate scheme, and wants a large lump of cash! Personally I dont want to take the risk of that happening in the future so im thinking of de-regestereing from the VAT. On the same hand I dont want to be losing out on £50 a week I can be earning perfectly legally. I wish there was a simple black and white answer to this at the moment but there doesn’t seem to be. As I mentioned previously 3 phonecalls to the Revenew allready has resulted in 3 different answers, so they dont seem to know themselves!
I
Warwicktrucker:
Worst case scenario is the VAT man says you dont qualify as a haulage company and should’n’t have been on a flat rate scheme, and wants a large lump of cash! Personally I dont want to take the risk of that happening in the future so im thinking of de-regestereing from the VAT. On the same hand I dont want to be losing out on £50 a week I can be earning perfectly legally. I wish there was a simple black and white answer to this at the moment but there doesn’t seem to be. As I mentioned previously 3 phonecalls to the Revenew allready has resulted in 3 different answers, so they dont seem to know themselves!
I
Maybe the best thing to do then is to put that extra funds into a savings account and If / When the VAT man comes knocking then you will at least have it to give back, if he dont after 6 yrs (I think) then its yours ?
Warwicktrucker:
I wish there was a simple black and white answer to this at the moment but there doesn’t seem to be. As I mentioned previously 3 phonecalls to the Revenew allready has resulted in 3 different answers, so they dont seem to know themselves!
I
If you write to them rather than speak to the phone clerks you will get a specific answer, in black and white too !!!
Mike-C:
I’d be very wary of using the flat rate scheme as a sole trader driver. . . In any event, it doesn;t matter what anyone here thinks, just hope it all stands up to scrutiny if you’re ever called in to explain.
Been registered for VAT 5 years and had visits from both the Vatman and HMRC in that time with no problem. In fact they were quite helpful with a few pointers.
