How to register for VAT as a freelancer

All you need to know from checking whether you are liable for VAT to getting your accounts in order and filing your returns on time

Rajeev Samtani, the co-founder and managing partner of Xcel Accounting, says freelancer tax returns must be accurate otherwise penalties apply. Pawan Singh / The National

The prospect of managing tax returns may seem daunting, but according to the experts, it is a simple process.

Steve Ashby, the founder of Businessmentals, a consultancy which targets freelancers, says you must 'ask, adapt and act'.

“Ask – go away and find out everything you need to find about the situation before you make any decisions so you are incredibly well informed. Adapt – take what you are doing now, whether it is the way you record your financial transactions in the case of VAT, or how you are invoicing or whatever it is, and act,” he adds.

Here is the process to follow:

* Check whether you are liable to register for VAT

Freelancers are split into three brackets for the purposes of VAT:

1. Those that generate revenues of more than Dh375,000 a year, who must register for VAT

2. Those generating revenues of between Dh187,500 and Dh375,000, for whom the choice is optional

3. Freelancers that earning less than Dh187,500, who cannot register under current rules

To register for a tax registration number (TRN), freelancers must have received Dh187,500 in income in the last 12 months, according to Rajeev Samtani, cofounder and managing partner of Xcel Accounting.

"So what the legislation says is it has to be the last 12 months or the foreseeable next 30 days. Say you have done Dh150,000 in the last 12 months and you feel you are going to do Dh37,500 in the next 30 days, based on that assumption you can register," he says.

* Get a licence

This is the first step for any freelancer not currently licensed, says Mr Samtani.

This may require the permission of an employer, if the freelancer has been working on the side, or as an ‘incognito’.

Many free zones across the UAE offer freelance licences.

* Register online

Once the freelancer has a license, they can start the process of VAT registration, which is completed online.

“You have to go to the FTA portal and put in details of your trade licence, your activity, your last 12 months’ revenues, your anticipated revenues, and fill out all of that and submit it,” says Mr Samtani.

The FTA will also need your business trade licence and other incorporated documents, such as a memorandum of association or an article of association. If they have a sponsor, you will be asked to produce your sponsor agreement, as well as copies of your passport and Emirates ID.

“The FTA will after a period of time come back and approve your registration and allocate a TRN (tax registation number) to you,” says Mr Samtani.

* Get your books in order

Unless you were already doing this, it is vital that all freelancers keep accurate records of their accounts -  including those not required by law to register for VAT.

Help is available in the form of accountancy packages, or they could buy software to assist them. Invoices must have certain disclosures, says Mr Samtani, and software can also help in this regard.

“Your TRN has to be mentioned and all of your invoices have to be sequentially numbered, so one, two, three onwards. And they have to disclose the total cost and the VAT separately, so people know what the VAT component is,” he says, adding that there is plenty of software available in the market that is VAT compliant and can produce the relevant invoices. He recommends Xero, Sage, Tally and Zoho Books, with accountancy packages starting at around $30 a month, says Mr Samtani.

If a freelancer struggles to adapt to such software, then they should seek training, or alternatively they could outsource the work to a company that can manage the freelancer's accounts on their behalf. Mr Samtani's business, for example, offers packages that start around Dh1,000 a month.

Alternatively, a freelancer can pay for training to learn how to do it all themselves, for a one-off cost of over Dh4,000.

* File your returns on time

Returns are filed online each quarter.

“Essentially you calculate your output tax, so that’s the tax you have collected from your invoicing. You then calculate your input tax. That’s the tax you have paid to your suppliers and you net it off. The difference is what you have to pay to the government,” says Mr Samtani.

“But you have to make sure it’s accurate, because there are heavy penalties if you make any errors.”