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I see on job sites many contract positions with certain hourly or daily rate.

Are those numbers normally include the VAT?

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    VAT, where? What country? Tax laws and practices vary. – Chris W. Rea Apr 5 '14 at 21:22
  • any jobsite like jobserve. i don't think it's country dependent at all. – gabox01 Apr 5 '14 at 22:49
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    Not all countries have a VAT, and those that do have one may have different practices with respect to quoting prices inclusive or exclusive of it. – Chris W. Rea Apr 5 '14 at 23:58
  • ok let's say UK – gabox01 Apr 6 '14 at 8:17
  • I would expect the numbers to be ex VAT. But it is probably explicitly written somewhere on the site in question. – assylias Apr 6 '14 at 17:54
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In the United Kingdom, VAT, as defined by several sources is:

a tax that's charged on most goods and services that VAT-registered businesses provide in the UK... charged when a VAT-registered business sells to either another business or to a non-business customer.

Asking whether contract positions "include the VAT" doesn't make any sense, because VAT is not chargeable on personal income. It is charged on goods and services you or your employer might sell to others. Personal income you earn through employment or running your own business is subject to other taxation, such as income tax.

Now, if I generalise your question somewhat, the figures you see quoted for jobs or contracts will NOT normally be inclusive of your personal tax liabilities, such as income tax. The figures are almost always quoted as gross pay, before deductions such as income tax, National Insurance contributions and any pension scheme contributions are taken off.

Whether it is your responsibility or your employer's to calculate and pay your tax for you depends on your legal situation regarding how you are employed and how you engage in work for other people.

Since tax is rarely simple, let's consider some common scenarios:

Employment

If you work for an employer, you will typically be paid a salary from which the employer is obliged to remove your tax, National Insurance and other deductions before you ever see the money. This is performed under the Pay-as-you-Earn (PAYE) scheme. You don't have to think about tax as your employer forwards the money directly to HMRC on your behalf. The amount deducted is shown on your payslip.

There may be additional contributions removed from your salary to fund a pension or other investment schemes which you or your employer may be enrolled in. For most people in the £10-40k salary bracket, you can expect to lose roughly 33% of your salary at source as tax.

This is the simplest scheme which normally applies if you have a long-term employment position, or you accept a contract position on a personal basis. The headline salary figure quoted by your employer does not include your tax obligations, which you must factor in to determine the actual pay you will receive on a month-by-month basis.

Most of the jobs in the site you linked in the comment appear to be under this arrangement, so the employer will deduct tax from the headline salary and pay it for you. The actual cash you earn will be somewhat less than quoted.

Own Business

If you earn your income by carrying out a trade through running your own business, and other people pay your business directly, then your tax obligations are similar, but there are additional considerations.

Any money you earn (whether from being a sole trader or an employee in a limited liability firm) is subject to income tax as above.

As a sole trader, you are responsible for reporting your income to HMRC on a yearly basis, normally by submitting a tax return after the tax year ends (on 5th April each year). The tax due is calculated and you are given a deadline to pay this as a lump sum, typically the end of the following January.

If you are an employee or the director of a limited liability firm, you are employed by that firm in the same way as the employment section above. You will be paid a salary which is subject to personal income tax and NICs in the usual way. Any money the company earns through selling its services normally belongs to the company, which is a separate entity for legal and financial purposes. The company has its own tax and reporting requirements, including the payment of corporation tax on its profits.

To come full circle, in either case, your company may be required to charge VAT to its customers on any work you undertake in one of two cases:

  • you voluntarily become VAT-registered with HMRC, which allows you to charge VAT to your customers and allows you to re-claim VAT on any company-related expenditure.

  • you or your company's turnover exceeds set thresholds at which it is compulsory for you to become VAT-registered.

Most mid-to-large sized companies in this field, especially the IT field, which do work for other companies tend to quote prices exclusive of VAT. Most of the firms they do work for will also be VAT registered, so the charging of VAT is merely a bookkeeping exercise; the seller is required to charge it, but the buying firm will ultimately not pay the VAT as they can claim it back.

Companies selling to consumers in the UK typically quote prices inclusive of VAT, as consumers normally have no ability to re-claim the VAT.


Of course, always seek clarification and consider taking independent legal/financial advice prior to engaging a contract or starting a new job, especially if you have doubts about the quoted salary and your arrangements due to tax. The situation becomes a little more challenging to comprehend if you are employed by several firms (you may end up overpaying, or worse, underpaying) or if you are both employed and self-employed.

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