Invoicing

[4leggedtrends]

My WebApp is being written just now and I need to know about invoicing so it can be written in. We will be using Paypal only as it is a subscription model. Do we still have to work out the tax and VAT on each invoice even though we are not at that level yet? What happens when we reach the VAT threshold?
Thanks

 

[WaveJumper]

if your not VAT registered then you don't add it to your invoices. When you reach the VAT threshold (85k) you will need to register and then add the VAT to your invoices.

More on VAT here:

Register for VAT

How to register for VAT, change your details, cancel your registration, register for VAT in EU countries.

www.gov.uk

 

[Scalloway]

If you are not VAT registered then all your invoices need to say is something like:

Supply of services for period X £0.00

They need to show your business details.

 

[4leggedtrends]

Ok so, if I sell something for £5.00, then i pay the tax on that to the tax man, and if i became vat registered, i would lose profit margin if the price stays the same? or do i need to increase my prices to cover this? and how is this shown in the accounts? when will we know when we've hit the vat threshold? thanks

 

[Dillon Lawrence Ltd]

Ok so, if I sell something for £5.00, then i pay the tax on that to the tax man, and if i became vat registered, i would lose profit margin if the price stays the same? or do i need to increase my prices to cover this? and how is this shown in the accounts? when will we know when we've hit the vat threshold? thanks

Yes, you take the hit or increase your prices. The upshot is you can claim VAT back on hosting etc.

From a development perspective you’d be wise to still include the ability to calculate tax now for when you do get to the threshold.

 

[Financial-Modeller]

You haven't mentioned whether your customers will be VAT-registered or not, but the obvious answer if you anticipate exceeding the VAT threshold is to register now - why wait?

But this:

...when will we know when we've hit the vat threshold?...

is pretty scary and suggests that there is a myriad of other stuff that you haven't considered.

Stop, and take some advice before proceeding further.

 

[MyAccountantOnline]

Ok so, if I sell something for £5.00, then i pay the tax on that to the tax man, and if i became vat registered, i would lose profit margin if the price stays the same? ...

Your VAT questions have been answered already but just to pick up on paying tax.

You dont pay tax on the £5 invoice you pay tax (or your company pays tax if you are trading via a company) on the profit made ie income less expenses.

It's wise to keep good accounting records so that you can monitor your business and see what profit you are making so that you can set aside money for tax.

 

[DontAsk]

Ok so, if I sell something for £5.00, then i pay the tax on that to the tax man, and if i became vat registered, i would lose profit margin if the price stays the same?

Yes

or do i need to increase my prices to cover this?

You can, but that's up to you. Will you market accept the price increase? This is why it is so important to plan ahead, for the day when you have to register, when starting a small business.

and how is this shown in the accounts?

Any decent accounting package will handle being VAT registered. Soon they will also have to support submitting your VAT return electronically.

when will we know when we've hit the vat threshold? thanks

If you can't answer that then, seriously, I don't think you should be running a business.

 

[MyAccountantOnline]

....

Any decent accounting package will handle being VAT registered. Soon they will also have to support submitting your VAT return electronically.

....

It's not soon it's now.

A VAT registered business with a taxable turnover over £85,000 must keep digital records and follow the Making Tax Digital rules (unless they are able to apply for an exemption).

 

[MyAccountantOnline]

... when will we know when we've hit the vat threshold? thanks

It's a good question and one which lots of new businesses ask.

What you need to do is keep good accurate accounting records which record your income and expenses and keep a record of the monthly sales. When the total of those sales for any 12 month period exceed the VAT threshold you have to register for VAT. A common mistake is using the financial year to check the turnover, but it is a rolling figure so you always add the previous 11 months to the current month.

Have a read here it gives you more information - https://www.gov.uk/vat-registration/when-to-register

 

[WaveJumper]

A definite candidate here for sitting down and having a discussion with an accountant

 

[DontAsk]

It's not soon it's now.

A VAT registered business with a taxable turnover over £85,000 must keep digital records and follow the Making Tax Digital rules (unless they are able to apply for an exemption).

Not until the end of March for me