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.