VAT

Being VAT registered means you can reclaim VAT on purchases that you have been charged VAT on. Using the standard VAT accounting method means that every quarter you would be required to fill in a standard VAT return form (online only). This must include:

• All output tax – this is the VAT which you have charged to customers/clients on your invoices in the relevant quarter. Whether you have or have not received payment for the goods/services provided, you still must add this to your VAT return form in that quarter.
• All input tax – this is the VAT which you have been charged by suppliers on goods or expenses your business has incurred during the relevant quarter. Again whether or not you have paid for the goods or expenses you must add this to your VAT return form in that quarter.
• You do not have to register for VAT until you reach the £81,000 threshold within a 12 month period of your business starting – once this amount is reached it is mandatory to be VAT registered.
• Some companies voluntarily register for VAT – this could be for many different reasons; customers will only do business with VAT registered companies or you may be looking to purchase many goods where VAT is chargeable and can be reclaimed.
• Standard VAT is currently 20%

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The flat rate VAT scheme is an incentive provided by the government to help simplify taxes and means you charge VAT on your invoices at 20% but only pay back HM Revenue and Customs at a lower rate, for IT Contractors (rates differ depending on your profession/trade ) the rate in your first year is just 13.5% of the gross amount and 14.5% in subsequent years (you receive a 1% discount in your first year).

This provides the following additional income (based on a 45 week working year):

• £200 per day contract – £1,710 extra per year
• £350 per day contract – £2,992.50 extra per year
• £600 per day contract – £5,130 extra per year

The FRS is therefore the chosen scheme for most Contractors, Freelancers, Consultants and Interim Managers. It is also the scheme that is recommended for businesses that have very few VAT chargeable purchases and expenses i.e. don’t buy much stock.

The VAT percentage you pay is considerably lower than that of the standard VAT rate, you then keep the difference as your profit.

Contact us for for further information and how we can help you.