VAT is value-added tax. It’s applied to the sale of most goods and services, though certain goods and services are either exempt, or charged at a reduced rate. And unlike income tax, it’s collected by the seller. At the time of writing, the standard VAT rate in the UK is 20%.
Only the most successful of freelancers and contractors are legally required to register for VAT. This is because you only need to register for VAT when your VAT taxable turnover exceeds £85,000. If you make more than £85,000 in a year as a self-employed freelancer or contractor, then you’re really doing well!
But maybe you are doing that well, and you’re fast approaching the VAT threshold. Or maybe you’ve heard that some freelancers and contractors choose to register for VAT anyway, even though their annual turnover is nowhere near £85,000. You might be wondering – why would they do this?
It’s because there are some serious benefits of being VAT registered as a freelancer or contractor.
Don’t think of VAT as a necessary evil, or as an irritating added expense. Once you consider the benefits, you might consider being registered for VAT as a strong business asset.
What Are the Benefits of Being VAT Registered?
There are four main benefits of being VAT registered:
- It’s a strong trust signal. Register for VAT and you’ll get your very own VAT registration number. Put this number on your website, your invoices, and even in your email signature. It’ll make you appear more professional and trustworthy to both existing and potential customers.
- It can raise your profile. Many people are aware of the VAT threshold. Most people know that only the most successful of businesses need to register for VAT payments. If you register for VAT before you hit that threshold, some might assume that your business is bigger than it really is. This might be just the thing to attract those big, lucrative clients. And of course, once you do hit that threshold, registering for VAT is a subtle yet powerful way of communicating that you mean business, and that you get results.
- VAT refunds. Once you’ve got your VAT number, you can reclaim for VAT on all the goods and services you buy for your business needs. You’ll have to balance it all with the amount your business is charging and receiving in VAT payments over the course of a year. So if you’ve bought any new equipment for your business, whether it’s a laptop or a power tool, you could potentially reclaim quite a lot of VAT. That’s right: Once you submit your VAT return, the taxman might actually have to pay you!
Other Responsibilities for Freelancers and Contractors
So you don’t need to register for VAT until you hit that £85,000 threshold. But having considered the benefits of being VAT registered, hopefully now you’ll understand why some freelancers and contractors choose to register for VAT long before they hit that threshold. It’s a good look for your business, one that might help you land some bigger clients. And if you make a lot of purchases for your business, VAT refunds might make the whole thing worthwhile.
But what is the one thing that all freelancers and contractors should consider – regardless of size? Insurance.
Too many self-employed freelancers and contractors have seen their businesses tank when faced with an unexpected scenario. Whether it’s an unhappy client, a problem with the supply chain, a personal injury, or some other kind of accident, the smallest of things can absolutely scupper your operations. But get yourself insured, and you can rest assured that you’ll be able to recover from any setback, no matter how big.
So whether it’s a cash settlement for a personal injury, compensation for a customer who’s had their property damaged, or even legal protection in the face of a dispute, insurance can give you whatever cover you need to survive and thrive.
We offer insurance for contractors and freelancers from as little as 35p a day. There are no hidden fees, you can cancel at any time, and you can get an online quote and full cover in a matter of minutes. Head here for more information.