A freelance consultant for example will send an invoice for his or her time and the

A freelance consultant, for example, will send an invoice for his or her time, and the client should pay that “gross”, without deducting tax or National Insurance. Then at the end of the year it is down to the consultant to make peace with the taxman, based on profits after reasonable business expenses.
“The Inland Revenue does give more flexibility to people running their own business, but any expenses claimed or deductions against tax have to stand up to the inspector’s scrutiny,” says Doug Bullock, head of private business at Coopers and Lybrand, the accountants. Many don’t even have to fill in a tax form and their employer in effect handles their tax affairs. Self-employment replaces this simplicity with a host of rules, allowances and exceptions.

With the VAT rate at 17.5 per cent, the savings on anything from a phone bill to a computer are significant.. Employees don’t know how lucky they are when it comes to financial management. VAT accounting used to be more onerous than tax, but the gap has narrowed with the advent of the Inland Revenue’s self-assessment system. The difference is that VAT has to be paid quarterly, but updating the accounts should be a discipline rather than a burden.Registration saves money, in terms of the VAT reclaimed, and businesses can earn interest on the VAT they have collected but are not due to pay. Registering for VAT is a decision that should be made early on.

Anyone with a turnover above pounds 48,000 has no choice: they must register and charge VAT on their sales. But even below that threshold, registration has its advantages.
Customs and Excise appears to encourage “voluntary” registration, and this is a key point. Businesses that are registered for VAT can reclaim the tax, so a VAT invoice presents no problems to them.The argument against registration is the paperwork. The authorities are prepared to give VAT back to businesses under one condition: you collect some tax on their behalf.