VAT Question For Sole Trader

jamesnp

Hi all,

I am in the process out getting a business off the ground, for the moment at least I'm doing this as a sole trader under a registered business name. I'm fairly ok with all the tax issues, etc. but I just can't seem to get my head around VAT. In particular VAT when I am acting as a subcontractor.

I.e. I am working for a VAT registered agency who are being employed by a client. Presumably this agency is charging the client VAT @ 21%. If I register for VAT I will also have to charge the agency VAT at 21%. I know that the agency will receive a refund for the VAT I charge them, but is it necessary to go through the whole rigmarole? Do I need to actually take the 21% VAT from the agency and basically send it on a long route back to them through Revenue?

My head is melted, cheers for any help on this,
jp

Pixelcraft

If you're under the revenue threshold, you don't actually need to register for VAT, but in turn you cannot charge it - you would simply put 'not registered for VAT' on your invoices.

To be honest though, it's probably better to go ahead and register for VAT whether you need to or not, it's one less thing to worry about down the road.

jamesnp

Yeah, I probably won't hit the limit this year (I think it's €35k for services?), but I'm hoping I will next year. Might as well register for it so...

Cheers ,
-jp

limericklassy

37 and half for services, so i heard..if dont think you will hit the limit, dont register.

PaulPinnacle

Pixelcraft wrote: »

To be honest though, it's probably better to go ahead and register for VAT whether you need to or not, it's one less thing to worry about down the road.

As a generalisation, I'd strongly disagree with that.

If your customer isn't VAT registered, you're instantly increasing your cost by 21%, without any added value or benefit. If your competitors aren't VAT registered, that's a significant advantage over you.

It also comes with significant obligations (not 'difficult' in some cases, but certainly better to avoid if possible).

If you've significant purchase costs where being VAT exempt could be beneficial, then something to consider. But without checking the pro's and con's in detail (preferably with a professional, most accountants will give free 1 hour consultations where you can discuss things like this) I'd strongly avoid registering 'just so it's done'.

Pixelcraft

Sorry I was generalising from mine and the op's point of view, for business to business sales. I would be less likely to deal with another business if they are not VAT registered, it's a trust thing to some extent.