[Tax panning][VAT][17/18] Which VAT scheme for an IT contractor?

[atanas]

Hi all,

I am about to open my company and I am bewildered by all the different VAT schemes. I am an IT contractor and I will not have many expenses going through the company, maybe £2-3K per year for travel and sustenance, a new laptop for £1.5K, maybe a new desktop ~ £500.

Is it better to be on the standard cash accounting scheme? For the flat one I know I can't reclaim VAT on purchases under 2K so I won't be able to reclaim much.

Cheers

[northernladuk]

Why aren't you asking your accountant this stuff? Surely looking at this and the last question you have an accountant? If you don't you seriously need one pronto.

Are you sure you won't have much in the way of expenses. What if your next gig is considerably further away?

[Pherlopolus]

I followed NLUKs advice before he gave it, asked my accountant Monday, did the sums on next gig and had it actioned yesterday.

On the basis of my expected hotel expenses I exited.

[MoroccanMole]

There are three VAT schemes, and post April 2017, the FRS loses any financial benefit, unless you count ease of processing. The other (cannot recall the name) is for used car dealers.

If your turnover is more than £83k, you charge 20% on your invoices and pay it to the C&E, and reclaim VAT on allowable expenses.

[MoroccanMole]

Hi all,

I am about to open my company and I am bewildered by all the different VAT schemes. I am an IT contractor and I will not have many expenses going through the company, maybe £2-3K per year for travel and sustenance, a new laptop for £1.5K, maybe a new desktop ~ £500.

Is it better to be on the standard cash accounting scheme? For the flat one I know I can't reclaim VAT on purchases under 2K so I won't be able to reclaim much.

Cheers

PS: Has anybody taken you aside and explained the IR35 regulations to you..........?

[LondonManc]

There are three VAT schemes, and post April 2017, the FRS loses any financial benefit, unless you count ease of processing. The other (cannot recall the name) is for used car dealers.

If your turnover is more than £83k, you charge 20% on your invoices and pay it to the C&E, and reclaim VAT on allowable expenses.

I presented some calculations on here the other week showing what you keep for collecting VAT based on £500/day
14.5% - £13
16.5% - £1

The problem with knowing your turnover is that you won't know if it's going to hit 83k until second half of the year in most cases.

[MoroccanMole]

I presented some calculations on here the other week showing what you keep for collecting VAT based on £500/day
14.5% - £13
16.5% - £1

The problem with knowing your turnover is that you won't know if it's going to hit 83k until second half of the year in most cases.

The graded Flat rate vat percentages have been scrapped so 14.5% last year becomes 16.5% this Tax year, which I am advised cancels out most financial benefits.

[LondonManc]

The graded Flat rate vat percentages have been scrapped so 14.5% last year becomes 16.5% this Tax year, which I am advised cancels out most financial benefits.

That's what I'm saying too - based on a 220 day year at 500/day, you're down £2,640 in the next financial year from this tax grab.

[MoroccanMole]

Atanas - you are perhaps getting conflicting information as previously, under the old system the Flat Rate VAT scheme offered a small profit for most contractors over using the standard system.

However, the last budget introduced changes to the %rates, so under the current system where you charge 20% and only provide say, 13% to Customs and Exercise, from April 2017 onwards, the Flat Rate VAT Scheme has essentially been scrapped so everybody, regardless of the older % rates, is shoved onto paying 16.5% charged.

The numbers have been crunched by persons and this percentage gain is so small (once corporation tax is taken into account) that contractor's are being advised to switch to the normal VAT system (20% in / 20% out).

Guidance notes are probably still catching up - search the forum for the latest information or speak to your accountant. Or get one, if you don't have one. They will save you more in tax than they cost in fees......

[teapot418]

Don't forget the 1% discount in the first year of trading on FRS, which might just about make it worth doing.