Contracting newbie VAT question

[asimov]

Hi all,

I wonder if anyone can provide any guidance on whether I need to be VAT registered for a contract I'm about to begin?
I have a Limited company and will be starting an IT contract that could last up to 3 months, the day rate works out to the equivalent of 50K per annum. The only expenses that I foresee will be a travelcard (around £180/month) and daily lunch subsistence - say £5/day.

Now, the issue I have is that I know that as I will earn below the threshold I do not have to register for VAT. I also know that there is the Flat rate VAT scheme which can be beneficial to some. The thing is I'm not sure what the best one to go for is for such a short-term contract with very few expenses. Any advice?

Thanks

[Wanderer]

I will earn below the threshold I do not have to register for VAT. I also know that there is the Flat rate VAT scheme which can be beneficial to some. The thing is I'm not sure what the best one to go for is for such a short-term contract with very few expenses. Any advice?

Although you are not required to register, I would recommend you go ahead and register for VAT and the FRS because you can make a bit of money out of it. It's not much admin and it may even make your company look a bit more professional.

[Greg@CapitalCity]

Yes, if you will only be contracting for 3 months, the hassle of VAT registration may not be worth it in your eyes. Financially you will always be better off being VAT registered, and if you think you will remain contracting for more than 3 months then I suggest you just do it.

To help you decide, I have done a quick illustration assuming you will invoice £12,500 in a 3 month period. VAT collected by you (at 20%) is £2,500. Assuming you are an IT contractor, your flat rate % in the first year will be 13.5%, so for the three months work you will pay £2,025 in VAT to the HMRC. The difference of £475 you get to keep. This is treated as taxable income for your business, but still the question you should ask yourself is, is VAT registration/returns/deregistration worth £475 for a 3 month period?