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Hi All,


I wonder if you could help me with a query. I run a small IT company which is VAT registered. (Currently I am not working with it though due to illness - I hope to return to work soon)


The business holds a large customer which is the main source of the businesses income. On a typical month the customer would be invoiced for the following:


Labour in the form of IT Support

3x Internet Connections on a Reseller Agreement I hold with an ISP


Both services I charge the standard 20% VAT rate.


What my query is. Is do I need to charge VAT on the Labour part? Because of that I lose 20% of the invoice value which sadly would see me better off on Disability Benefits once PAYE is deducted even further.


Can anyone advise me on how I could reduce my VAT overheads as these are incredibly costly!




Shark :)


* edited to add, the company is currently being run by someone else in my absence, but I want to make sure the goal posts are in the right place when I return :)

This is how I spend most of my life :ranger:

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Yes, you do have to charge VAT on the labour element.


If your VATable turnover is less than £150k you could apply for the flat rate scheme. What you would do is apply the fixed rate percentage to your gross income. No input VAT would be claimed on purchases unless it was for a capital asset of more than £2,000 (gross).


I would check to see if the scheme worked for you. Not only would the scheme cut down your admin for preparing the Return but MAYBE reduce your VAT liability significantly!

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It sounds like your sales level could be quite low. Another option might be to de-register from VAT in which case you wouldn't need to charge (although you wouldn't be able to claim back either). I'm not a tax expert so I'm not sure about levels but I think it's around £80k and below for possible exceptions. Have a look at how much you are losing out on and if de-registering might be an option check out the HMRC VAT site for exemption levels.

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