10. VAT

Value Added Tax (VAT) is a completely separate tax from income tax. You have to register for VAT if your turnover is more than £ 64,000 a year, but can choose to register voluntarily at less than this amount.

VAT account

Period from 1 January to 31 March, 2008

Once registered, you can claim back the VAT you pay on supplies, provided you have a VAT receipt for them. You also have to add VAT to any supplies you make in the UK, which includes all fees and expenses you incur on behalf of a client. The VAT on copywriting is levied at the standard rate, 17.5 per cent at the time of writing. Your invoices will need to show your VAT number, and every three months you will have to prepare a VAT account, which is a short summary showing how much money you are claiming back and how much you have added on. (Since 2002 there has also been an optional flat-rate VAT scheme allowing companies with a turnover of up to £ 150,000 to calculate their VAT payment as a given percentage, 9.5 per cent for advertising, of their total taxable turnover including VAT at 17.5 per cent. To find out more, ask your VAT office for a copy of Notice 733 or download it from www.hmrc.gov.uk). You then need to complete a VAT return and send it, along with the balance of your account, if you owe money, to HMRC. An example of a quarterly VAT account is shown in Figure 4.

If that all sounds a bit complicated, do not worry. Compared with income tax, VAT is easy, and is something you would probably deal with yourself rather than handing to your accountant. However, having to deal with it every three months can still be a chore, so it is debatable how much benefit you would get from registering if you do not really have to.