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Starting a contract before the VAT registration is complete.

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    Starting a contract before the VAT registration is complete.

    Hi, Crunch (accounting) have applied for my VAT registration for my newly created company but there was a mistake and hence HMRC requires more evidence/documents for the verification process. I have all of those and have already provided them to Crunch which in turn will update my application. Based on this I am worried that it may take a bit longer to complete the process.

    Given that I will be starting on a new contract soon, my question is if for the first invoice I don't include VAT (adjust my rate by +20%) and then adjust it again once I have my VAT number (VAT registration - GOV.UK). My first invoice will be at least 6 weeks from today so there is still time to get it in time but I am trying to find what are my options in the worst case scenario.

    Thanks in advance.

    #2
    This is quite common.

    Yes, issue an invoice without VAT and add a note to the bottom saying VAT invoice to follow on completion of registration.

    When you get your registration number, send an invoice for the VAT element only. Reference the original invoice issued without VAT. Do not reinvoice for the actual work element as you've already issued a charge for that.

    The agency will probably want to see a copy of your VAT certificate so you may as well send it with the VAT only invoice.

    Comment


      #3
      Originally posted by ladymuck View Post
      This is quite common.

      Yes, issue an invoice without VAT and add a note to the bottom saying VAT invoice to follow on completion of registration.

      When you get your registration number, send an invoice for the VAT element only. Reference the original invoice issued without VAT. Do not reinvoice for the actual work element as you've already issued a charge for that.

      The agency will probably want to see a copy of your VAT certificate so you may as well send it with the VAT only invoice.
      Thanks for the info

      Comment


        #4
        HMRC recommendation is to do as you mention in your first post. Send an invoice with your fees increased by 20%. Then when you have your VAT number reissue a valid VAT invoice. See bottom of this page:

        VAT registration - GOV.UK

        No need to do a VAT only invoice. Just explain to your client what’s going on.

        Comment


          #5
          Originally posted by TheCyclingProgrammer View Post
          HMRC recommendation is to do as you mention in your first post. Send an invoice with your fees increased by 20%. Then when you have your VAT number reissue a valid VAT invoice. See bottom of this page:

          VAT registration - GOV.UK

          No need to do a VAT only invoice. Just explain to your client what’s going on.
          Wrong but hey...

          Registration only takes a couple of weeks, so there is zero need to "add" 20% to preserve your cashflow: you will be registered before you have to pay over the VAT. Not that you will get a VAT Return demand before you're registered anyway.

          Ladymuck outlined the correct process.
          Last edited by malvolio; 26 October 2018, 23:35.
          Blog? What blog...?

          Comment


            #6
            Originally posted by malvolio View Post
            Wrong but hey...

            Registration only takes a couple of weeks, so there is zero need to "add" 20% to preserve your cashflow: you will be registered before you have to pay over the VAT. Not that you will get a VAT Return demand before you're registered anyway.

            Ladymuck outlined the correct process.
            Either approach is fine, but HMRC recommend the approach stated by CP, so you can't say it's "wrong".

            See the same "correct" advice here :

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

            Comment


              #7
              If using the 'adjust rate by 20% in lieu of VAT' method, anticipate agency being too dumb to understand what is going on and bounce the invoice for having the wrong rate.

              Such an issue should not occur with the older more recognised 'submit invoice stating VAT invoice to follow' method, but the choice is yours.

              Pre-empt any issues by discussing with the agent before submitting the invoice, they may have a preference to which method to use based on their accounting processes.
              Maybe tomorrow, I'll want to settle down. Until tomorrow, I'll just keep moving on.

              Comment


                #8
                Originally posted by malvolio View Post
                Wrong but hey...

                Registration only takes a couple of weeks, so there is zero need to "add" 20% to preserve your cashflow: you will be registered before you have to pay over the VAT. Not that you will get a VAT Return demand before you're registered anyway.

                Ladymuck outlined the correct process.
                There’s nothing wrong with the approach of just waiting until your number arrives before sending your first invoice either but the approach I outlined is the one HMRC have been advising for years. It is not “wrong”.

                Comment


                  #9
                  Originally posted by TheCyclingProgrammer View Post
                  There’s nothing wrong with the approach of just waiting until your number arrives before sending your first invoice either but the approach I outlined is the one HMRC have been advising for years. It is not “wrong”.
                  OK, but accountants usually advise the other option. And, as has been mentioned, agencies will be expecting that route as well, so why not stick to the one that works and does not mean you have to inflate an invoice even if the agency billing system lets you do so? And not that any of us give a damn, but it also keeps the agency's VAT Accounting straight, as a minor benefit.
                  Blog? What blog...?

                  Comment


                    #10
                    I was always taught to go with TCP's method. Seems to be what FreeAgent recommend too.

                    Ie it's not a formal VAT invoice, but the amount payable tallies with what the gross VAT invoice will be. So supplier (provided they're happy to) can pay the figure on the invoice, then get a formal VAT invoice to back it up later. No further payment required at that point, and they can then just mark the initial payment as including 20% VAT.

                    To my mind that's far easier than doing a net invoice when you/the client both know they'll end up having to pay 20% more...then doing a VAT only invoice further down the line. Means two payments if nothing else.

                    Of course there will be an element of "the customer's always right", and what their systems accept may dictate how you proceed if you want to be paid promptly. Whilst neither solution is particularly complicated, you can imagine both will cause issues with the agency's systems...so best to try to get VAT registration in place fully prior to invoicing.

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