Autumn statement - end of VAT flat rate scheme?

[VectraMan]

I would be surprised if *any* contractor/freelancer who falls under the definition of "limited cost" trader would make anything other than a net loss on the FRS. £200 allowance on £100k turnover - and some don't even turnover that much - would be wiped out in an instant by accountancy fees alone. It would only take £1000 of expenditure on services over the course of the year to use that allowance up.

Though on the last year it'll only be about £50.

[radish2008]

You are very confused I'm afraid.

How so ?

[DaveB]

Ok - so let me just check this.

Currently I earn 100k - Plus 20% VAT and I pay 14.5% of that 20% to Gov.

In April 2017 I earn 100k + 20% VAT but pay 16.5% on £120k to Gov ?

I've just done my final year accounts and as expected my CT has increased by £5k + I have 2k on account to pay.

:-(

No.

You invoice for £100k+ 20% VAT = £120K.

You pay HMRC 14.5% of the gross including VAT = £17.4k you "save" £2.6k a year in VAT - £20k invoices - £17.5k paid - upon which you then pay 20% = £520 in corporation tax as part of your profits for a net benefit to your co. of £2080.

On the new rate you pay HMRC 16.5% of 120K = 19.8k You "save" £200 in VAT upon which you then pay 20% = £40 in corporation tax as part of your profits = equals a net benefit to your co. of £160.

If your Vat'able expenses are more than £160 pa then you will be better off on the standard VAT scheme and claiming everything back on your VAT return.

[TheCyclingProgrammer]

If your Vat'able expenses are more than £160 pa then you will be better off on the standard VAT scheme and claiming everything back on your VAT return.

No, if your VATable expenses are more than £1000 net (£200 VAT) you would be better off on the standard scheme.

You have to account for the input VAT before deducting corporation tax from the flat-rate surplus (because on the FRS your input VAT is part of the gross tax-deductible cost for CT purposes, so £200 VAT would reduce your CT bill by £40).

Likewise in your first example if you'd made £2.6k in flat-rate surplus but also incurred say, £1000 in input VAT, your "profit" from the scheme would be £1600 and you'd pay £320 in CT for a net benefit of £1280.

[deepblueuk]

End of the different FRS VAT categories?

So, I guess this means the end of all the various different FRS categories which existed?

So, regardless if your business was in a FRS category that was linked to an 8% VAT or one that was linked to a 14% VAT, with the new regulation, you will now be paying 16.5%?

[Alan @ BroomeAffinity]

So, I guess this means the end of all the various different FRS categories which existed?

So, regardless if your business was in a FRS category that was linked to an 8% VAT or one that was linked to a 14% VAT, with the new regulation, you will now be paying 16.5%?

For contractors, yeah, that's correct. And I think probably fair(er).

[blackeye]

Does anyone have any calculations of net personal income from LTD drawing all available income Versus umbrella scheme?

Maybe with the increase in dividend taxes plus the loss of the flat rate money makes both fairly close now.. Plus a hell of a lot less hassle.

[eek]

Does anyone have any calculations of net personal income from LTD drawing all available income Versus umbrella scheme?

Maybe with the increase in dividend taxes plus the loss of the flat rate money makes both fairly close now.. Plus a hell of a lot less hassle.

The issue there is not income but expenses. With no expenses there probably isn't much in it. £200 a week of expenses via a limited company requires £500 of before tax income via an umbrella.

[blackeye]

The issue there is not income but expenses. With no expenses there probably isn't much in it. £200 a week of expenses via a limited company requires £500 of before tax income via an umbrella.

Hmm, you're right. For me this news is the last straw as I have next to no expenses (apart from accounting fees etc), so time to ditch the LTD. Government 1 - Me 0.

[deepblueuk]

The issue there is not income but expenses. With no expenses there probably isn't much in it. £200 a week of expenses via a limited company requires £500 of before tax income via an umbrella.

Can you please elaborate a little on this calculation?

Thanks