VAT is a “sales” tax that is controlled and collected by the HMRC (HM Revenue & Customs).

If you use an Umbrella Company then you do not need to worry about VAT.  The Umbrella Company will calculate VAT on your invoices and pay the necessary amounts due to the HMRC.

If you use a Limited company/Personal Service Company and expect to turnover more than £64,000 per annum, you should register for VAT- this simply means that you collect VAT on behalf of Customs & Excise on sales invoices paid by the Agent/Client and must account for this and ensure the correct amounts are paid over to HMRC. Registration takes between 6 – 12 weeks.

Each quarter, the HMRC will send you a green VAT return for completion. All VAT received on your sales invoices minus VAT paid on legitimate company expenses should be paid over to HMRC. VAT is currently 15% on most items although some things are zero rated or low rated at 5.1%. There is also the concept of the Flat Rate scheme to help simplify the process and you need to decide which method to use when applying for VAT

You can calculate (and repay) VAT on a cash or accruals basis - i.e. based on when you receive VAT from your invoices, or based on invoices sent during the VAT quarter for which you may not yet have received payment. An accountant will advise you which method is best for you.

If you use an agency on a PAYE basis then the agency will be responsible for all VAT processes.

An Umbrella Company such as Parasol covers all of the VAT implications for you.