Protect your business
Being VAT registered doesn’t have to spell paperwork and ultimately may even mean more money in your pocket
If you have been put off registering for VAT by the extra burden of admin, it's time to ask your accountant about the Flat Rate VAT Scheme. Launched in 2002, the idea behind the scheme is that instead of working out and accounting for all VAT on purchases and sales made for and by your business, a set percentage is applied to the turnover of the business as a simple one-off calculation to work out how much VAT you owe. For photographers, that percentage is currently 9.5 per cent or 8.5 per cent in the first year.
The scheme is also suitable for businesses that are already registered for VAT. It's open to any business with a turnover of less than £150,000, and it should mean much less time and money spent keeping VAT records and calculating how much you owe. The downside, of course, is that you can’t claim back VAT on every purchase, but if you buy a camera or any other capital asset costing £2000 or more including VAT, all of the tax paid can be reclaimed in the usual way.
Aside from the additional prestige being VAT registered will give your business, the flat-rate scheme can also increase your income. To give you an example, let's assume a freelance photographer’s income is £40,000 and his expenses total £15,000. His taxable profit is £25,000. However, by joining the flat-rate VAT scheme, his turnover including VAT would be £47,000, and the VAT repayable would be £4,465 (47,000 multiplied by 9.5 per cent), leaving a taxable profit of £27,535. That gives an increase of over £2,500.
But a word of caution: the voluntary registration scheme is not for everyone, nor is the flat-rate scheme. Photographers who sell mainly to the general public, portraits and weddings for instance will have to sell their goods with 17.5 per cent of VAT – so either your prices will be higher than your competitors’ or you will have to drop your prices to compensate. But for those with mainly corporate or business clients, such as commercial photographers, who will be able to claim back the VAT, the system will undoubtedly save them money.
To help you decide whether to sign up, there is a useful calculator on the HMRC website. The simplified accounting applies to all businesses that use the scheme though and that time saving might ultimately decide whether or not you choose to join the scheme.
For more information, www.hmrc.gov.uk and www.businesslink.gov.uk .
