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One of the most frequent questions we get asked by our superstar Recruitment client base is how to file a VAT return?
& that’s because if we were to look at some of the concerns that all our clients have before taking the leap & starting their own recruitment business, it’s the added responsibility that comes with running your own business. From the legal & compliance responsibilities that fall on their shoulders to the accounting & back office provisions that, seemingly overnight, become the backbone of any successful recruitment start-up.
The team here at Isotope know that & therefore, while of course we’re so pleased that our clients are aware of some of the provisions & responsibilities they now have as 100% owner of their new recruitment business, we don’t want their focus to be on anything but recruiting; driving their business through interviews, placements & offers rather than being held back by calculating NI contributions, CT liabilities & VAT returns.
We believe that it’s part of our job here to provide diligent accounting & back office support to our recruitment entrepreneurs so – & yep you’ve guessed it – how about we spend the next 5 minutes (10 if you’re feeling particularly daring!) talking through what VAT is all about; a Recruiters introduction in everything from how to file a VAT return to how VAT is calculated & what you need to be aware of when launching your new recruitment start-up.
So, what is it? How does it work? & what do you, a motivated recruiter running their own agency, have to think about when it comes to the wonderful world of VAT?
VAT is a tax charged at 20% on the majority of goods & services. VAT is added to the sale of the majority of goods & services IF the company selling is VAT registered.
Currently, as a company, you are not legally required to be VAT registered unless your turnover exceeds £85,000 in a 12-month period. However, in our many years of working with & advising recruiters in their own agencies, we would always advise your accounts team to ensure you are registered for VAT from Day 1.
Simply put, let us imagine your company (ABC Recruitment for example) raises an invoice to their client. Yippee – a placement!
ABC Recruitment would raise the invoice to their client & charge VAT on top of the agreed fee. So, by way of example, if ABC Recruitment were to be charging a fee of £1,000 – you would include VAT on top of this.
In this instance, the VAT charged would be £200. 20% of the invoice value.
Let’s now say your client pays you the full invoice amount – £1,200. ABC Recruitment would collect this £1,000 & then allocate the VAT (the remaining £200) against any upcoming quarterly VAT return.
On the flip side… let’s now say that ABC Recruitment receives an invoice from another company. The chances are that invoice will have VAT added at the prevailing rate (currently at 20%) & you, ABC Recruitment, would pay the invoice & the VAT payable as well.
& it is then that we welcome into the fold the infamous Taxman…
A VAT Return is the information submitted on a quarterly basis to HMRC from your company that would outline the amount of VAT due for payment from ABC Recruitment.
In other words, it is calculated as the difference between what your company receives in terms of VAT within a given quarter & what your company pays in VAT during that same quarter.
So, for example if your company receives £200 in VAT and then is charged £150 in VAT on an expense purchase – you would pay the difference between the two amounts to HMRC (£50).
Us.
Isotope.
Always.
As part of our job in supporting you & your recruitment business, it would be our responsibility as your accountants to handle the calculation for you on a quarterly basis and will keep you up-to-date in your Monthly Management Accounts with your future VAT liability as well – alongside much much more of course!
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