UK VAT

[#1]

Hi,

I'm a new freelancer based in the UK (Scotland, to be specific).

I know this question has been brought up many times, but I wondered if you could give me an answer.

If you're registered as a sole trader and don't have a VAT number, Upwork will charge you the VAT as the final customer for their service, the same way Sainsbury's does when you buy something there.

However, if you request a VAT number, does Upwork still charge you VAT? Or will you just pay VAT to HMRC? And if you pay it to HMRC, can you reclaim VAT at the end of the year?

Thank you

[#2]

Hi Rui,

Once you have your VAT number, you can add it by going to the Settings > Tax Information page. The tax ID that you submit must be in the format provided by VIES, or Upwork won't be able to validate it.

We will not charge VAT if a freelancer or agency has a valid VAT number. Upwork will charge VAT on any invoices created before and during the validation process. We can't refund you this amount. You may be able to claim credit for such amounts on your VAT return so please check with your tax advisor. You can also check this help article for more information.

Thank you.

[#3]

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Rui C wrote:

Hi,

I'm a new freelancer based in the UK (Scotland, to be specific).

I know this question has been brought up many times, but I wondered if you could give me an answer.

If you're registered as a sole trader and don't have a VAT number, Upwork will charge you the VAT as the final customer for their service, the same way Sainsbury's does when you buy something there.

However, if you request a VAT number, does Upwork still charge you VAT? Or will you just pay VAT to HMRC? And if you pay it to HMRC, can you reclaim VAT at the end of the year?

Thank you

---

It would be a bad idea to register for VAT just to avoid paying Upwork the VAT on their service charge, because that means that you'll have to charge VAT to all of your clients from now on - either by raising your prices or absorbing the costs yourself. It'll cost you more, not less. It's also an extra nuisance to fill out all the forms to remit the VAT to HMRC. My advice is not to register unless you have to (i.e. once your earnings are above the threshold).

[#4]

Hey Christine A,

That's great info. Thank you 🙂

But see if I had a VAT number, wouldn't it be the same money-wise? The 20% Upwork charges me, I'd just pay to HMRC, right? So I wouldn't have to overcharge anyone. I might be missing something here tho.

[#5 · Accepted solution]

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Rui C wrote:

Hey Christine A,

That's great info. Thank you 🙂

But see if I had a VAT number, wouldn't it be the same money-wise? The 20% Upwork charges me, I'd just pay to HMRC, right? So I wouldn't have to overcharge anyone. I might be missing something here tho.

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No, because Upwork doesn't charge VAT on the total value of your project, they only charge VAT on their service charge. So if you charge $100 for a project, Upwork deducts 20% ($20) plus 20% of that as VAT ($4). Whereas if you register for VAT, you/your client will owe HMRC 20% of $100 (the total project fee) - not 20% of $20 (Upwork's fee) - plus Upwork's service charge.

There's plenty of information online about the pros and cons if you want to look into it further. https://www.kashflow.com/should-i-register-for-vat/ But in general, it's not worth it if you're just getting started in freelancing.

[#6]

Thank you so much for such a clear answer

[#7]

Thank you Christine

[#8]

So in this example you’d pay 20% of the full project value to HMRC ($20) plus the 20% service charge to upwork ($20) deducting $40 in total bringing you down to just $60 profit? Is that correct?

[#9]

I’m actually not sure if you should declare as earnings 100% of what the client is charged and then put Upwork’s charges as expenses, or if you should just declare what you earn after Upwork’s charges. Not sure

[#10]

Hi Christine, thank you for your helpful answers on several posts. Would you have to charge VAT to ALL clients? Even those based in the US?
I am approaching the threshold where I would have to register for VAT in the UK, but I have a longstanding client in the USA who pay me through Upwork. They have no presence in the UK or in Europe.

Would I have to charge them VAT? Effectively increasing my prices by 20%?

Thank you for any insight into this!

[#11]

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Rui C wrote:

Hi,

I'm a new freelancer based in the UK (Scotland, to be specific).

I know this question has been brought up many times, but I wondered if you could give me an answer.

If you're registered as a sole trader and don't have a VAT number, Upwork will charge you the VAT as the final customer for their service, the same way Sainsbury's does when you buy something there.

However, if you request a VAT number, does Upwork still charge you VAT? Or will you just pay VAT to HMRC? And if you pay it to HMRC, can you reclaim VAT at the end of the year?

Thank you

---

____________________________

Rui, 

Do check the UK tax system on this and the pros and cons of applying for a VAT number before it is obligatory, which normally is not  until you are earning in the region of £85,000 per annum. You might find this article useful: https://www.freelanceuk.com/news/16510-vat-uk-freelancer’s-overview.shtml

[#12]

How do UK-based VAT-registered suppliers charge VAT on their services to UK-based customers using Upwork? Do we need to raise a separate VAT invoice directly to the client outside Upwork?

[#13]

Hi Jonathan, Did you ever get an answer to this one?  If you are a UK VAT registered company offering services for a UK customer, VAT is due.   I thought we were supplying Upwork in the US, who then resells to UK customer, VAT not due ?  Which is it?  There is a clue:

I have just done a "test gig" to check this out.  I did the work, and got an "invoice" with my details and VAT number on it and the details/place of supply being the end client as the service receiver.  VAT is TOTALLY due on this. 

There is a little comment about Upwork reversing VAT charges on the fees, but this is not the VAT due (20% of the cost of the gig before deductions).  This is a deep bear pit.

VAT is due, no if's, no buts.  Unless you like bird.  When last VAT audited they had me for working as a contractor for a Japanese firm.  Took hours with specialist tax advisor to sort that our, and prove to VAT man we didnt need to pay tax.  Cost £2000 + VAT  😞

So the only way to proceed is to reverse engineer your hourly rate from GBP to USD (with suitable fee for bank ), then add on the amount due to the Upwork (skims 10% off total amount), then add on the VAT on the top of that.   When quoting for jobs, UK ones are the best but got to think about VAT.

So my opinion now is leave the low price stuff for non-UK bidders, as the best end-clients are VAT reg businesses, who want a VAT receipt for the work they received rather than an hour under the Gestapo lamp when VAT inspector comes around.  Second only to an IR35 audit session (eyes roll, deep sigh), 6 hours proving that I choose to only have 1 ongoing contract at a time, due to the fact I only have 2 arms and 1 brain.  

It's not fun, OK, not even fantasising about having a pet crocodile in a box under desk who likes the taste of Government trouser.

All the best

Richard

[#14]

I am considering taking on a new client, which would push me over the threshold where I have to register for UK VAT. I have one longstanding client, based in the USA, who pay be through Upwork.

If I have to regiater for VAT in the UK, do I have to start charging VAT (effectively increasinging my prices by 20%) to my client? My client is based in USA and has no UK or European presence.