If you’ve recently started working as a freelance affiliate marketer, then you might be feeling confused about taxes and VAT. But it’s important that you don’t let this stop you from realising your full freelance potential. You already have all the skills you need to be successful in your chosen career path, but it’s normal to need a little help when it comes to figuring out all the details. This guide will help you to feel more confident when submitting your VAT return (if you are VAT registered) and has some tips to make the whole process a bit easier.
However, before you delve into VAT and how much tax you need to pay, it’s important to understand how the right types of software can help you to stay organised. Tools such as this VAT Calculator allow you to be as accurate as possible with all your calculations, while more general accounting packages will help you to keep all your invoices and files safe and secure.
What is VAT?
While most freelancers understand what income tax is and why they have to pay it, VAT can be something of a mystery. Basically, VAT is short for Value Added Tax and it’s added to most products and services that are sold in the UK. As the name suggests, the amount of VAT you pay will depend on the value of the product or service that you’re selling. The standard VAT rate is currently 20%, but some goods may be taxed at a reduced rate or may even be VAT exempt.
Who has to pay VAT?
To pay VAT you must be VAT registered and, while businesses have the option of registering at any time, they must register once their annual turnover exceeds the threshold of £85,000.
How to become VAT registered
You can register to pay VAT online through the gov.uk website, which is also where you’ll have to submit your return once it’s been completed. If you have an accountant or are thinking of getting one in the near future, then you can nominate them to submit your return for you. In some instances, you won’t be able to register online. For example, if you’re applying for a registration exception or trying to register different divisions of a corporation, then you’ll need to send your application through the post. Once you’ve completed the process, you can expect to receive a certificate in around 30 working days.
What does MTD mean for VAT?
MTD or Making Tax Digital means that from 1st April 2022 all businesses will be required to submit their VAT return digitally. This means all your tax records need to be digital as well, so investing in a good, accredited accounting software package is essential. While MTD might seem confusing now, it will actually make your tax return much quicker and easier. You can choose to manage your VAT and tax calculations yourself, or you can give an accountant access to your systems for some extra peace of mind.