Flat Rate VAT scheme

**Nixon Williams** · 29 April 2009, 11:13

VAT is charged at 15% on your services; this is paid over on a quarterly basis, less any VAT that you are claiming for goods and services purchased if you are not in the Flat Rate Scheme (see below).

Most contractors will benefit from the VAT Flat Rate Scheme – you still charge 15% VAT; but the business simply pays over a reduced amount, typically 11.5% (10.5% in the first year) of the gross turnover.

The 11.5% rate is for IT contractors.

So an invoice for £1,000 + VAT (£1,150) - you would pay over VAT of £132.25 (1150 x 11.5%) saving £17.75 (£29.25 in the first year).

The savings are not as good since VAT was reduced to 15%, but the benefits should return to their higher amounts when VAT returns to 17.5%

If an asset cost exceeds £2000 including VAT, then you may reclaim the VAT even though you are on the Flat Rate Scheme.

I hope this helps.

Alan

**ASB** · 29 April 2009, 13:01

Be careful if you do any internation work. If these supplies end up zero rated rather than outside the scope of UK VAT then it can get very expensive - since you'll be paying the FRS percentage on things you haven't charged any vat on.

**Moscow Mule** · 29 April 2009, 14:23

Originally posted by Nixon Williams View Post

Most contractors will benefit from the VAT Flat Rate Scheme

About 2k according to last years accounts...

**TheCyclingProgrammer** · 29 April 2009, 15:30

Originally posted by ASB View Post

Be careful if you do any internation work. If these supplies end up zero rated rather than outside the scope of UK VAT then it can get very expensive - since you'll be paying the FRS percentage on things you haven't charged any vat on.

WHS. Look into the place of supply rules if you're selling your services abroad; I've done work for US-based clients which is outside the scope of VAT (and therefore not counted towards your flat-rate turnover) but things might be a bit more complicated within the EU.

If something is zero-rated, you still have to pay the flat-rate on it even thought you haven't charged it (although I guess you could adjust your rate to accommodate this).

**kaiser78** · 30 April 2009, 08:12

Also bear in mind that you will get a 1% discount on the first year of FRS - so instead of paying 11.5% you will only have to pay 10.5% (unless this has changed recently).

Well worth doing if your t/o is less than £150k.

**EchoSierra** · 30 April 2009, 09:24

Originally posted by denver2k View Post

Hi,

Has anyone used that scheme?

I am in IT so i'll have to pay 12% fixed rate which seems ok to me as compare to 15% which agency will pay to my limited company.

But Im planning to buy company laptop and Phone as well,and will have to pay VAT on that.

I have read about that scheme (pros n cons etc) but Im just wondering, has anyone got any negative comment about this scheme.

You'll find a lot of people use it. I use it and find it much more simple to administer and I get a little something out of it. (Umbrella companies do this too for their clients but don't tell them and so they pocket the VAT/FRS difference).

If your laptop and phone purchase is less than £2000 you might want to purchase it before you go onto FRS (I'm assuming you're already VAT registered). That way you can claim the VAT back on those items.

**denver2k** · 30 April 2009, 10:55

Originally posted by EchoSierra View Post

You'll find a lot of people use it. I use it and find it much more simple to administer and I get a little something out of it. (Umbrella companies do this too for their clients but don't tell them and so they pocket the VAT/FRS difference).

If your laptop and phone purchase is less than £2000 you might want to purchase it before you go onto FRS (I'm assuming you're already VAT registered). That way you can claim the VAT back on those items.

Good point....

I just paid VAT for last 3 months in March. Next is due in June maybe.

So if i buy my stuff and then register for Flat rate, In June, will i need to pay full Flat rate for 3 months or its for time after registration(i.e. May and June).

**sweetandsour** · 1 May 2009, 07:34

Originally posted by denver2k View Post

Good point....

I just paid VAT for last 3 months in March. Next is due in June maybe.

So if i buy my stuff and then register for Flat rate, In June, will i need to pay full Flat rate for 3 months or its for time after registration(i.e. May and June).

You have to apply to be on the flat rate scheme (unlike the cash accounting scheme that you can "just do") but I do not see how it would be possible to take a mixed approach over any single VAT quarter.

If I were you I would get the purchases out of the way in one quarter, then apply for the next quarter.

You get a few quid for being on the flat rate scheme provided that your expenses are low, but not so much that it is worth creating any unnecessary headaches for yourself.

Flat Rate VAT scheme