If you work as a contractor, there is a chance that you could save yourself money by becoming VAT registered.
VAT – or Value Added Tax – is a tax that is paid on the sale of goods (although not all). In the UK currently, the VAT rate of most goods and services is 20%, although a reduced rate of 5% and no VAT is charged on some goods and services.
The law stipulates that any contractor that passes the VAT threshold – a gross income of over £85,000 – must register for VAT. Failure to do this can result in the contractor being fined by the government.
It is also possible for contractors that are limited companies to become VAT registered even if they do not pass the £85,000 threshold. In some cases, the contractor is financially better off doing this, but it depends on the specific circumstances that you should look at before making this decision.