Getting paid by finance company

guitarloser You shouldn't have charged VAT if you were not registered in the first instance (Other please correct me if I am wrong) You owe the VAT man the VAT you have been paid so I guess it becomes necessary for you to register now.
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If you are already charged VAT on your invoices you have misunderstood how VAT works. You shouldn’t charge VAT on an invoice unless you are VAT registered , similarly you can’t reclaim VAT costs unless you are VAT registered. An unregistered business pays VAT on its invoices, and does not add any VAT to its sales. The finance company shouldn’t have actually paid you out on an invoice with no VAT number, so they have made an error too. The amount of VAT you have been paid needs to be paid over to Customs and Excise, less any amounts you have paid out on your input vat on your expenses. I would suggest you ring the VAT office asap, 0845 010 9000 explain what you have done and get yourself registered. They may back register you to the beginning of this month, they are actually pretty flexible when it comes to errors if you confess quickly and play the innocent. The worst thing to do would be nothing for 6 months and sit on the VAT as it will look like you tried to pull a fast one and pocket the vat, although this clearly does not appear to be your intention. You would then need to re-issue the invoice to the finance company explaining that your original did not contain your VAT number. The other way to do this is to repay the VAT to the finance company, and issue a cedit note, explaining that you where not VAT registered. If you do this, you won't be able to reclaim any VAT on your costs. If this was just a one off this might be easier than becoming VAT registered. From an income tax point of view, you should have registered as a sole trader prior to commencing your trade. If this is a genuine one off you can get away with declaring this as "other income" on your tax return, but you will need to fill one in regardless of whether you are asked to or not. If you plan to do it again, register yourself. You are supposed to do this within 3 months of starting a trade. If you sort it out now (ie this week), you should be able to avoid any problems, and then get things official for the next transaction you enter into. If you need some further help, then let me know. I am used to helping people out when they start up, even if they have got themselves into a bit of a muddle. Regards, James Smith Chartered Accountant www.jamesesmith.co.uk www.uktaxshop.co.uk 01284 764436
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James Smith
Chartered Accountant
www.jamesesmith.co.uk
01235 536 773

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Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT

Many thanks for your explanation James. It cleared alot up. The finance company concerned have just paid me on my second job without VAT and less the VAT they paid for the first job so we are all clear on that front. I think I will register as a sole trader but not for VAT just yet. I realise I cant claim the VAT back on any purchases I make though. Is it true I can carry on until I reach the threshold of 56000 quid before I need to register? Cheeers Guitarloser

ok - looks like they spotted it the second time around. The VAT threshold is currently £58,000, so registration upto this point is voluntary. It may be worthwile if you are incurring significant VAT on your costs, as the finance is presumably VAT registered, so you the only thing to really think about is the cost of completing your returns (time or getting somone else to do it for you) vs the amount you could reclaim. Glad you have got it sorted out. Regards,
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James Smith
Chartered Accountant
www.jamesesmith.co.uk
01235 536 773

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Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT

Thanks mate. If I decide to get someone to do the returns it will be you! It sounds like I would be better off registering at this stage as I have paid quite a bit of vat on stuff I have bought. Thanks again Mike