by Kobus Van den Bergh of 1st Contact Accounting
If you’re a VAT registered contractor, you’re able to claim VAT back on goods bought for your company. But the majority of contractors and freelancers who contract through a limited company don’t buy a lot of stock. This makes the Flat Rate Vat (FRV) scheme a more appropriate option for contractors and freelancers.
If your turnover is more than £79 000 per year, you have to be VAT registered.
You’re also able to register for VAT voluntarily if your business turnover is less than £79 000. And because the FRV scheme can reduce your administrative burden and perhaps leave you with excess cash, depending on your situation – voluntary registration could be a viable option.
Being VAT registered also adds more credibility to your business, creating a professional image for you limited company.
Flat Rate VAT
Flat Rate VAT is an incentive provided by the government to help simplify taxes by reducing the time needed to complete accounting tasks and calculating tax.
Like standard VAT, you’ll still need to submit a quarterly VAT return form, but you’ll only pay a single flat rate percentage on your turnover of each quarter.
If you want to apply for this, you need to be VAT registered.
When and how can you apply?
In order to apply for FRV, your turnover has to be less than £150 000 exclusive of VAT.
However, once you’re on the FRV scheme, you can stay on as long as your turnover remains less than £230 000 inclusive of VAT.
You can apply when you register for VAT, or later down the line. You can start using the scheme from the date you registered for VAT, if you apply near to the time of your VAT registration.
You can apply to HMRC by post, email on by phone. You could also get in touch with an accounting firm who offer a VAT registration service.
The benefits of FRV
The main benefit here is that you’ll spend less time on the books, and more time concentrating on your business as you won’t have to record the VAT on your expenses.
You get a first year discount. If you’re in your first year of VAT registration you’ll get a 1% discount on your flat rate percentage until the day before the first anniversary of being VAT registered.
You’ll have fewer rules to follow and won’t have to work out what VAT on purchases you can and can’t reclaim.
There are less chance of mistakes, so you’ll you have fewer worries about getting your VAT right.
The flat rate VAT provides certainty in the sense that you’ll always know what percentage of your takings you’ll have to pay to HMRC.
You’ll be able to charge clients 20% VAT on goods. However, you’ll only need to pay HMRC between 9 to 14.5% of the VAT back on your gross turnover, depending on the industry worked in.
If you’re a contractor and the above information applies to you, it might be worthwhile to register for Flat Rate VAT. Speak to your accountant or a financial advisor to see if this system could benefit you.
1st Contact Accounting are experts at taking care of contractors’ specific accounting needs. For more information, you can visit their website.
Image by Vichaya Kiatying-Angsulee, http://www.freedigitalphotos.net