You're a VAT-registered freelance designer. A client agreed to £500 for a logo design. How do you invoice them?
The Mistake Most New VAT-Registered Businesses Make
Wrong approach:
- Invoice total: £500
- Client pays: £500
- You keep: £400 (£500 - £100 VAT to HMRC)
You just gave yourself a 20% pay cut.
The Correct Approach
Right approach:
- Agreed price: £500 (net)
- VAT (20%): £100
- Invoice total: £600
- Client pays: £600
- You keep: £500
- HMRC gets: £100
The client pays the VAT, not you.
How to Quote Prices When VAT-Registered
Always clarify:
"My rate is £500 + VAT" or "£500 (ex VAT)"
Never say: "£500 total" and then surprise them with £600 invoice.
Real Invoice Example
Invoice #001
Logo design project: £500.00
VAT @ 20%: £100.00
Total due: £600.00
Payment terms: Net 30 days
What Happens to That £100 VAT?
You collect: £600 from client
You keep: £500 (your income)
You hold: £100 in trust for HMRC
On your VAT return (quarterly):
- Output VAT collected: £100
- Input VAT paid on expenses: (say £20)
- Owe HMRC: £80
You don't keep the full £100—you can reclaim VAT on your business expenses.
VAT on Your Expenses
You buy a new laptop:
- Price: £800
- VAT: £160
- Total: £960
You pay: £960
You reclaim on VAT return: £160
Net cost to you: £800
This is why B2B clients don't mind paying VAT—they get it back too.
The Cash Flow Reality
Month 1:
- Invoice client: £600
- Client pays in 30 days
- You have £600 cash
Month 3 (VAT return due):
- You owe HMRC £80 (after reclaiming expenses)
- You pay £80
Your cash: £600 - £80 = £520 (you keep £500, rounding diff for other expenses)
Critical: Don't spend that £100 VAT! It's not your money.
Common Pitfall: Mixing Prices
Scenario:
- You quoted £500 + VAT before registration
- You register for VAT mid-project
- Do you now charge £600 or £500?
Answer: Check your contract. If it says "£500 + VAT" or "subject to VAT if applicable," you charge £600. If it says "£500 total," you eat the VAT (costly lesson).
What If the Client Says "I Thought It Was £500?"
Your response:
"£500 is my fee. VAT is a government tax I must collect. I can't absorb it—HMRC still expects me to pay it whether I collect it or not. If you're VAT-registered, you'll reclaim this £100 anyway."
Most B2B clients understand. If they're consumers, they might push back—but you can't lower it without losing money.
Multiple Services on One Invoice
Invoice #002
Logo design: £500
Business cards design: £150
Website mockup: £350
Subtotal: £1,000
VAT @ 20%: £200
Total: £1,200
Client pays: £1,200
You keep: £1,000
HMRC gets: £200 (minus your input VAT)
Should You Include VAT in Your Advertised Pricing?
B2B services: List prices ex VAT ("£500 + VAT")
Consumer services: Include VAT in prices ("£600 inc VAT")
Why? Consumers think in total prices. Businesses think in net prices.
Use our VAT Calculator to quickly add VAT to your invoices.
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