Contractor Resources - VAT – Flat Rate Scheme

Standard VAT Scheme is where you collect VAT on company sales @ standard rate of VAT (20% from 04.01.2011) and pay this across to the Customs & Excise less the VAT that your company has incurred on its expenses.

Flat Rate Scheme (FRS) is where you collect VAT on company sales @ standard rate of VAT (20% from 04.01.2011) but pay across to the HMRC at the Flat Rate Percentage for your industry sector on the 'gross' turnover i.e. sales value + VAT (e.g. 14.5% for IT Consultants from 04.01.2011). There is no deduction for input tax on expenditure (except for capital items over £2000).

The FRS aims to simplify VAT Accounting for small businesses. The scheme is available to most businesses whose taxable turnover (excluding VAT) is expected to be less than £150,000 in the next 12 months and total business income less than £187,500. The scheme can continue to be used until VAT inclusive annual turnover exceeds £225,000.

Your accountant will be able to help determine if it's beneficial for you to apply for the VAT FRS.

Examples

Majority of Contractors working through their personal service company benefit from being on the VAT Flat Rate Scheme and save anything between £1k-£4k per year on VAT.

Further information on the VAT Flat Rate Scheme together with FRS industry sector percentages can be found at: http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm

 

If you have any questions on the above please Contact Us