Flat rate VAT

[Ittechy]

As a newbie to contracting and to this site, apologies if my question has been covered elsewhere but i would appreciate a little help.
I have not yet set up an accountant as my accounts are likely to be very basic as i only have minimal transactions.
I have therefore not yet registered for VAT as i am not expecting my turnover to be greater than the threshold.
However from reading online it seems that it may still benefit me to be VAT registered on the flat rate scheme.
From my understanding i shall charge my client 20% VAT but only pay HMRC 14.5%. Sounds good to me, but surely theres got to be a catch.
Please can someone elaborate on whether it is a good idea for me to register for VAT?
Thanks in advance.

[Chart Accountancy]

If you are contracting, the new limited cost trade rules will likely apply for you so that your flat rate will be 16.5% but in your first year of registration, you will get 1% discount.

[adubya]

And the amount you pay to HMRC is 16.5% (15.5% in first year) of the gross invoice amount i.e. with the 20% VAT included.

[jamesbrown]

And the amount you pay to HMRC is 16.5% (15.5% in first year) of the gross invoice amount i.e. with the 20% VAT included.

In other words, it almost certainly doesn't make sense, except perhaps in your first (discount) year. If you pay an accountant, the VAT on those fees alone would likely exceed any saving.

[ladymuck]

However, if you don't want to faff about with receipts etc, it's still a decent scheme. You just need to run the numbers and check which VAT scheme is most appropriate for your business.

[Patrick@Intouch]

Under the new "limited cost trader" category for flat rate VAT a contractor invoicing, say £80,000 would charge their client £96,000 and pay £15,840 in a normal year and £14,880 in the first year.

The "gain" to the company then would be £160 in a normal year but £1,120 in the first year. You should also consider the fact that under the flat rate scheme you can only claim VAT on purchases where those purchases exceed £2,000 in cost including VAT. As you are in your first year of contracting you may have equipment to purchase as well as your standard costs for accountancy etc...

Under the standard scheme you would need to charge VAT to your client and declare this to HMRC together with a declaration of any VAT that you have incurred during the same period.

If you are not going to incur VAT of more than the "gain" made in the first year then it may be worth registering under the flat rate scheme for one year and then switching to the standard scheme.

[SeanT]

Flat rate first year, make sure your IT equipment purchase is over 2 grand, buy anything else before you register for VAT

[Ittechy]

Thanks Patrick

Under the new "limited cost trader" category for flat rate VAT a contractor invoicing, say £80,000 would charge their client £96,000 and pay £15,840 in a normal year and £14,880 in the first year.

The "gain" to the company then would be £160 in a normal year but £1,120 in the first year. You should also consider the fact that under the flat rate scheme you can only claim VAT on purchases where those purchases exceed £2,000 in cost including VAT. As you are in your first year of contracting you may have equipment to purchase as well as your standard costs for accountancy etc...

Under the standard scheme you would need to charge VAT to your client and declare this to HMRC together with a declaration of any VAT that you have incurred during the same period.

If you are not going to incur VAT of more than the "gain" made in the first year then it may be worth registering under the flat rate scheme for one year and then switching to the standard scheme.

WOW! Thank you for the detailed example. I think i am going to register for the Flat rate vat scheme in the first year. I intend on purchasing some IT equipment which shall most certainly cost over £2,000 and so i shall be able to claim back the VAT. I shall then consider going onto the standard rate VAT scheme after the first year. I think i'll weigh up my options again in 12 months time. Thanks again for the great example.

[l35kee]

I was/am in a similar situation. Bought my "equipment" (new laptop, etc) prior to april where i was on non-flat rate. Accountant putting me on the flat rate now until Sept-time, when I'll lose the discount and be moving off the flat rate.

[northernladuk]

I have not yet set up an accountant as my accounts are likely to be very basic as i only have minimal transactions.

Please can someone elaborate on whether it is a good idea for me to register for VAT?

Accountants aren't there just to look at your transactions you know....