VAT and Self-Employed Drivers
Advice on VAT for self-employed drivers
Being a self-employed owner / driver gives you the option to run your own business. But, you also have a choice as to whether you want to charge VAT if your turnover stays below £85,000* (2019/2020)
What is VAT?
VAT (Value added tax) is an automatic tax that businesses have to charge on products and services in the UK. Some things, such as food supplies, insurance and children’s clothes are exempt, but the majority of sales in the UK include VAT.
The current rate of VAT is 20%, and, any business that has a turnover (sales) in excess of £85,000 per year (as of April 2018) must charge it to their customers.
For instance, if you charged your services at £120 per day, you would charge £120 + VAT, which would mean you would actually charge £144.00 (£24.00 of which would be VAT payable to the government).
Who Benefits From VAT and will it cost me money?
Because you are adding on VAT on top of the price you charge, it does not cost you money directly. What’s more, if your business buys products or services which are VAT registered you can claim it against the VAT you charge. There are rules about what can and can’t be claimed but it is a big advantage if you are spending quite a lot of money for services or products.
Eg. If your accountant or solicitor charges VAT for the services they charge your business, you can claim back the VAT. So, if their charge was, for instance, £500 + VAT (£600) you can claim the £100 VAT back.
Do I Have To Register for VAT?Any business with sales of more than £85,000 per year must register for VAT so if your business turnover (the amount of money your business invoices each year) reaches this amount then VAT registration is compulsory. But, you can voluntarily register for VAT even if your sales are lower, but you will have certain responsibilities.
When you register for VAT with HMRC, you are given a VAT number, which you must state on each invoice or receipt you give. You must then start to charge VAT on top of the price of any goods or services you supply along with the split of the VAT charge on your invoice.
From the date of your VAT registration you must:
Flat Rate VAT
HMRC offer smaller businesses, with sales under £150,000 per year a scheme called Flat Rate VAT.
The amount of VAT a business pays or claims back from HM Revenue and Customs (HMRC) is usually the difference between the VAT charged by the business to customers and the VAT the business pays on their own purchases.
But with the Flat Rate VAT Scheme:
Should I Register for VAT?
If you are an owner / driver you need to balance the benefits of being VAT registered against the extra administration and costs for you.
The rule of thumb is whether you are (a) selling to businesses who can recoup the VAT as your price against a competing driver can be the same net amount without any difference; and (b) whether you are purchasing sufficient products or services against which you can reclaim the VAT for it to make a substantial difference.
Your accountant should be able to advise you on the on the best course of action.
Staying on Top of VAT
You must inform customers of any change to your VAT registration status as soon as possible when you make it.
You must also remember that any VAT you collect when customers pay you is not yours and must be paid to HMRC when it becomes due.
You can register for VAT online, or ask your bookkeeper or accountant to do it on your behalf.
Want to learn more?
We have a range of articles to help you if you are currently a self-employed driver or thinking of becoming one.