When does HMRC start VAT tax, on registration or on tax year?

[Akani]

I forecast that my earnings this year will be beyond the threshold of £81,000. If I register just before I reach the 81,000 threshold does my earnings in this tax year before my VAT registration get taxed with VAT?

So basically when does HMRC start taxing me for VAT, is it from the time I register for VAT or from the beginning of the tax year?

[tractor]

...

I forecast that my earnings this year will be beyond the threshold of £81,000. If I register just before I reach the 81,000 threshold does my earnings in this tax year before my VAT registration get taxed with VAT?

So basically when does HMRC start taxing me for VAT, is it from the time I register for VAT or from the beginning of the tax year?

When to register

You must start keeping records and account for VAT from the date when you were required to register, even if you have not received your VAT registration number and certificate. If you are registering voluntarily, you must account for VAT from the date you asked for on your application form.

Theer are many useful pages linked from the page that is linked above.

HMRC does not charge you VAT, you collect it on behalf of and pay it to HMRC net of purchase VAT.

[JB3000]

I forecast that my earnings this year will be beyond the threshold of £81,000. If I register just before I reach the 81,000 threshold does my earnings in this tax year before my VAT registration get taxed with VAT?

So basically when does HMRC start taxing me for VAT, is it from the time I register for VAT or from the beginning of the tax year?

You will need to register for VAT if your turnover in the last 12 months exceeds £81k.

You would need to charge VAT going forward (you would not charge VAT retrospectively on the last 12 months).

Most contractors voluntarily register for VAT (i.e. they don't wait 6-9 months when they hit the £81k figure). Most contractors register for VAT straight away. This is because they register for the flat rate scheme for VAT. You can make an additional profit by being on this scheme. For example, if your turnover for the quarter is £30k and you are VAT registered you will need to charge an additional £6k in VAT to your agency. On the flat rate scheme you would pay over £36k (total gross income) x 14% (business/management/financial consultant rate) = £5,040. Consequently you have received £6,000 in VAT from your agency but have only had to pay £5,040 to HMRC, i.e. a £6,000 - £5,040 = £960 profit.

Check with your agency in order to find out if they are happy for you to register for VAT and the point at which they are happy with you to register for VAT.

[TheCyclingProgrammer]

The £940 in the above FRS calculation is not profit. An often repeated myth on here. You need to consider the cost of being on the FRS too, which is not being able to recover input VAT in most cases.

The FRS surplus is turnover. You need to add up your total FRS surplus in a year and then subtract all of the input VAT you have incurred which you can't reclaim on the FRS. This will give you your actual profit (or loss) from the scheme.

If you have high VATable expenses you can make a loss on the scheme which is why it's important to understand what your actual profit is.

[Contreras]

Most contractors register for VAT straight away. This is because they register for the flat rate scheme for VAT. You can make an additional profit by being on this scheme. For example, if your turnover for the quarter is £30k and you are VAT registered you will need to charge an additional £6k in VAT to your agency. On the flat rate scheme you would pay over £36k (total gross income) x 14% (business/management/financial consultant rate) = £5,040. Consequently you have received £6,000 in VAT from your agency but have only had to pay £5,040 to HMRC, i.e. a £6,000 - £5,040 = £960 profit.

Valid point in principle, but the OP hasn't mentioned their sector. Corp. tax needs to be factored in as well. Assuming IT consultancy, FRS is 14.5% (13.5%/1st year), post-tax profit on £30k net would actually be £620.

I prefer to think of it as effectively 2% profit on net rate for us IT bods (3% in the 1st year).

That neglects to factor in the VAT that could have been recovered on purchases.

There's also the subjective element of time saved due to the simplicity of FRS calculation, and not needing VAT receipts for everything.

[malvolio]

Valid point in principle, but the OP hasn't mentioned their sector. Corp. tax needs to be factored in as well. Assuming IT consultancy, FRS is 14.5% (13.5%/1st year), post-tax profit on £30k net would actually be £620.

I prefer to think of it as effectively 2% profit on net rate for us IT bods (3% in the 1st year).

...if you prefer, but you shouldn't really work with net figures...

That neglects to factor in the VAT that could have been recovered on purchases.

...which may be significant...

There's also the subjective element of time saved due to the simplicity of FRS calculation

...which is minor given we usually only have around 5 invoices a month to worry about...

, and not needing VAT receipts for everything.

...and if you have a VAT inspection, how do you then justify your figures...?

You're right though. FRS may well be the best option, but you have to do the sums, and keep an eye on things as they change

[Contreras]

That neglects to factor in the VAT that could have been recovered on purchases.

...which may be significant...

Indeed.

There's also the subjective element of time saved due to the simplicity of FRS calculation

...which is minor given we usually only have around 5 invoices a month to worry about...

Speak for yourself. But anyway, number of sales invoices isn't a factor in whether FRS is simpler or not.

, and not needing VAT receipts for everything.

...and if you have a VAT inspection, how do you then justify your figures...?

For FRS, a VAT inspection wouldn't be interested in purchases. So while you may still need evidence for other audits, you're not obliged to get VAT receipts for everything.

All I was saying is there is this subjective element of simplified admin (how much is your time worth?) to factor in when considering FRS and it's not just about pure profit/loss number crunching.