Hey there. Since this is anonymous, I will be completely frank with all the financial information. I’m a software developer with a full time job, and I’m taking on a job as a freelancer in my spare time. The question is, do I need to register for VAT?
I make 80,000£ in my main job, which puts me in the 40% tax bracket. The job is offering 3,500$ per month.
Here are the two situations I’m considering:
1. I don’t register for VAT, and I don’t charge it
So my final monthly earnings from this job is 0.6*3500 = 2100$
2. I do register for VAT, and I charge it
Since I’m performing a service for the client’s business, he will be able to claim VAT back, so no changes for him.
From my side, I still need to pay my income tax of 40%. 20% will come from the VAT, leaving me with 0.8*3500 = 2800$ i.e. more than the previous example
Obviously, the second scenario works better for me, but is my understanding even correct? If it’s not correct, can someone please explain what would be the correct calculation?
Thank you.
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