VAT and working as a consultant question

Chet Zar

Hey guys,

A quick question on working as a self-employed consultant for another company - around VAT and contractual arrangements.

Let's say I start working with a company a few days a week as a consultant. I bill them a daily rate for days worked during each week. If I earn over the limit for VAT (€37,500), how do I go about charging this, and what kind of contract or arrangement should I look to put in place with them?

Also, I am not actually working directly for them - I am working with their clients on their behalf. The company is a design agency. Let's say my daily rate is €350, and let's say I start on May 1st. I envisage it will be on average 3 days a week for the next 4-6 months at least.

What kind of arrangement should I set up? Do I need to charge VAT only once I have earned 37.5k, or do I need to start charging VAT from the outset, if I think I will earn over that in one year?

Charging VAT straight away really means reducing my daily rate, as otherwise it may be too expensive for them I would say...

barneystinson

Chet Zar wrote: »

Hey guys,

A quick question on working as a self-employed consultant for another company - around VAT and contractual arrangements.

Let's say I start working with a company a few days a week as a consultant. I bill them a daily rate for days worked during each week. If I earn over the limit for VAT (€37,500), how do I go about charging this, and what kind of contract or arrangement should I look to put in place with them?

Also, I am not actually working directly for them - I am working with their clients on their behalf. The company is a design agency. Let's say my daily rate is €350, and let's say I start on May 1st. I envisage it will be on average 3 days a week for the next 4-6 months at least.

What kind of arrangement should I set up? Do I need to charge VAT only once I have earned 37.5k, or do I need to start charging VAT from the outset, if I think I will earn over that in one year?

Charging VAT straight away really means reducing my daily rate, as otherwise it may be too expensive for them I would say...

Well if your customer are VAT registered they can recover the VAT charged by you...

Chet Zar

barneystinson wrote: »

Well if your customer are VAT registered they can recover the VAT charged by you...

Really?! Never knew that! How come..? Guess it can just be written off as expenses?

And do I need to charge VAT straight away? Doesn't seem to make sense until you have made 37.5k in one year. Or maybe if you don't go over the limit you can claim it back.

dbran

Hi

You are obliged to register for VAT once you believe your turnover will exceed the threshold over a 12 month period. So you cannot wait until you go over the limit. Once you believe that you turnover will be greater then 37.5k over the next 12 months you need to register immediately.

Regards

dbran

Chet Zar

dbran wrote: »

Hi

You are obliged to register for VAT once you believe your turnover will exceed the threshold over a 12 month period. So you cannot wait until you go over the limit. Once you believe that you turnover will be greater then 37.5k over the next 12 months you need to register immediately.

Regards

dbran

Thanks dbran, that's as I figured. So if I sought to charge say 300e/day for consultancy, to earn that I would really have to be charging say €370? (300 x 23) / 100

And is it all the one for the design agency, as they can just claim back the VAT I charge them?

dbran

If the design agency is registered for VAT then they will not care as they will just claim the extra VAT back on their next VAT return. It would just be a cashflow issue for them if anything.

The Corinthian

Chet Zar wrote: »

Also, I am not actually working directly for them - I am working with their clients on their behalf. The company is a design agency. Let's say my daily rate is €350, and let's say I start on May 1st. I envisage it will be on average 3 days a week for the next 4-6 months at least.

dbran wrote: »

You are obliged to register for VAT once you believe your turnover will exceed the threshold over a 12 month period.

Strictly speaking he's not yet obliged to do so.

By his calculations, he's looking at billings of about 27k over the first six months; to hit annual earnings of 37.5k, he's need to be doing over 8 months work, at the rates quoted. All assuming a regular average 3 days per week ongoing at 350€ p.d., as there are no guarantees of that level of ongoing work; the average could end up working out as 2 days per week - in which case he will never reach the threshold.

So the question is whether he 'believes' that this association is going to work out in the long term and/or he can bring in other sources of income that would also contribute to that total.

Of course, there's nothing stopping him registering for VAT anyway and it does have the advantage of allowing him to claim VAT back on business purchases and expenses. But, as with most red tape, it is a minor pain in the arse to deal with on an ongoing basis - but mainly unregistering is, if your business association does not work out and you stop freelancing. The only other disadvantage is that it will scare off a certain 'class' of client who don't want to pay VAT, but from experience, you don't want to go there anyway.

So in his position I would be tempted to hold off for, say, three months to see how the business relationship works out, unless already confident to reach that total in the next 12 months.