When I set up a consultancy business after selling my executive search company, I suddenly was faced with matters that had never been on my radar before - tax, company returns, pay roll, insurances and…VAT.
Whereas before we had a finance team who dealt with such matters, I was now solely responsible. I could have asked my firm of accountants to take control of it for me but it wouldn't work in the same way as having an in house team- and it would have cost money. I would still have to maintain meticulous records and I would still have to watch out for deadlines and ensure that all returns were submitted on time. I decided to take control of my own VAT and I soon discovered that it was very simple.
I realised that VAT is about being organised, keeping receipts, having an excellent numbering system for invoices and then having a calendar reminder to pull it together on time. I used Quickbooks for my online records and this ensured accuracy and an ability to keep track of who had paid and when they had done so. I am sure that no one becomes a consultant because they love keeping financial records. However, it is the foundation stone of a successful consultancy business and having excellent systems allows you to develop and grow your business without any anxieties about financial compliance.
The threshold for registering for VAT is currently £85,000 but you can register before that if you want to. It can help with credibility with potential clients as not being registered for VAT can indicate that you are a very small business, something that might not work in your favour with some clients. Whoever would have thought that VAT could be a business development tool?
You could decide to register for the flat rate scheme (VAT FRS); you still charge VAT to your customers in the normal way, but you pay a percentage of your total sales to HMRC as VAT. The percentage depends on what your business's trade is. It has been designed to save a small business time, rather than cash. HMRC have an excellent website www.gov.uk/vat-returns and they have downloadable guides to help you make the right decision. It would also be wise to speak to your accountant before you go ahead, just to ensure that you are selecting the right plan for you.
Although I used to mutter that I was just an unpaid tax collector for VAT, it did make a difference to me as a consultant who had to watch profitability. Suddenly I could reclaim the VAT on purchases and it is surprising just how much these can mount up to. Suffice to say it is significantly more painful today as an employee who is not registered for VAT to buy a new laptop. Not only that, as I registered for VAT straightaway, I didn't have a credibility hurdle to overcome with new clients.
Getting to grips with VAT is one of the challenges facing people as they set out to develop portfolio careers but, in my opinion, it is something to be embraced rather than dreaded.
5th September 2017