Freelancers' Questions: Should I VAT register to use projects website?
When setting up my freelance profile on an online projects and creative skills platform, they say I'll be charged VAT on the 10% service charge that the website takes. I don't have a VAT number as I’m not VAT-registered. And I don't have any clients yet. So how can I tell if it’s worth me registering for VAT and using the site? If I do register for VAT, does it mean I have to start paying it to HMRC? If so, is that 20% of everything I earn?
In the UK, you can voluntarily register for VAT if your level of sales isn’t expected to exceed the VAT threshold (£85,000 from April 1st 2017) or, as in your case, if you intend to make sales at a future date but aren’t actually selling to clients right now.
You could register for a VAT number in order to use the website, without making payments to HMRC. You will only have to pay VAT to HMRC once you have clients and are charging them VAT on sales -- and this amount would be minus the VAT you pay on your costs and overheads. The default rate is indeed 20%, but it depends what you are selling as some goods/services, for example books, are zero-rated.
If you do apply for VAT registration, you can recover VAT on your costs -- such as the service fee you mention and, generally-speaking, for a service fee you would be able to go back six months prior to the registration date. If your business involves buying goods, you can recover the VAT on those, including any that you bought up to four years previously -- as long as you still possess them when you register.
The expert was Adrian Houstoun, VAT partner at business advisers and chartered accountants Kingston Smith LLP.
4th April 2017