Contractors’ Questions: How to invoice while waiting for VAT number?

Contractor’s Question: I set up a limited company on 17/02/16 and I started trading on 07/03. But because I wasn't registered for VAT, I asked my agency to delay my invoices until I got my VAT number and said I would then issue all of them at once, including VAT. They agreed; I registered for VAT on 15/03/and awaiting the VAT number.

Therefore, to date I only have 2 authorised timesheets for the days I have worked, but I haven't sent them to the agency with any invoice, so my business bank account is empty. Since I am my ‘Ltd’s’ sole director, and to get a monthly salary, I need to register as an employer with HMRC. When I log in to do this, HMRC says: ‘Please enter the first pay day, or the first date you made payments of expenses or provided benefits to your employees.’

This question seems difficult for me to answer. What should I do? I’m concerned, too, about my P60, and wonder how my answer to HMRC’s question will impact P60 and my tax code.

Expert’s Answer: I will firstly address issuing invoices before your VAT number arrives. What you need to do; is work out how much you would have charged your customer including VAT and then send them an invoice for that amount. So for example, if your fees for those days would total £1,000, and the services you’re supplying are standard-rated for VAT (most are), then you would invoice your customer for £1,200. That’s worked out as £1,000 plus 20% VAT. But what you mustn’t do just yet is to show that £200 as a separate line on the invoice.

Once you have your VAT number, go back and re-issue that invoice to your customer, showing the VAT as a separate line this time, and with your VAT number on it, to make sure it’s a valid VAT invoice. That way, your customer can reclaim the VAT you charge to them.

Bear in mind, HMRC do say you should do it this way rather than charging your customer for the amount before VAT first and then sending them a separate invoice for the VAT amount alone.

In terms of your salary and registration issue, this relates to a different tax (income tax rather than VAT) and in this case, the “pay day” HMRC is asking you about is when your company will pay you your salary, rather than when your customer will pay your company.

You ask about a P60  Your P60 is a summary of everything your company has paid you as a salary during the tax year, and won’t be affected by what your customers pay to your company or by what VAT you charge. If your company doesn’t pay you a salary before April 5th 2016, then you won’t have a P60 for that tax year, which is perfectly fine. Again, what your customers pay your company, and when, won’t affect your tax code, which relates only to your salary that you receive from your company.

I would recommend you concentrate on getting your company’s invoices to your customers first and collecting that cash, so that the company has money to pay you a salary.

The expert was Emily Coltman ACA, chief accountant at Free Agent, an online accounting platform tailored to contractors and the self-employed.