Flat Rate Scheme for IT contractor?

**malvolio** · 29 January 2018, 15:29

Lazy advice, IMHO. And if he doesn't explain properly, ask him again. until he does. You're paying him remember...

However if you have VATable expenses FRS doesn't really benefit the typical contractor as much as it used to, even with the first year bonus 1% so probably not worth it longer term. The only way to tell is to work out the numbers, which is tricky until you have a little history to work with.

It's easy to switch over anyway.

**Eirikur** · 29 January 2018, 15:43

Originally posted by jmanu View Post

Hi all,

I am about to enter the contracting world, currently trying to set everything up with the help of my accountant.
One of the things he proposed to me is to be in a Flat Rate Scheme, but she did not really asked me any questions before advising to go for it, so I just wanted to know a third opinion before giving her my final answer.

My case is: IT contractor, specialised in web front-end development which recently got an opportunity to work in a contract for 6 months at a rate of £400 p.d.
Since I just started with this I had to buy some brand new equipment: laptop, phone, SIM cards, etc.

Is it a good idea to go for a flat rate or should I opt for a standard VAT scheme?

Thanks in advance.

Just do the maths, add up the VAT of your accountant, Mobile subscription, every 3 years a new laptop etc, printer, ink, stationery, etc etc. and don't forget the 4p VAT deduction per mile you can claim back. If you are expecting to stay away a lot in hotels it will certainly be better to be on the standard rate

**Hobosapien** · 29 January 2018, 15:44

See this article available via the CUK Navigation bar -->

https://www.contractoruk.com/vat/it_...pril_2017.html

The yardstick for leaving the FRS is surprisingly simple:

Do you spend more than 1% of your turnover on VAT-able goods and services?
If ‘yes’, it's likely you'll be better off moving to the standard VAT scheme.

I'd assess what costs your Ltd is likely to incur to determine how likely the above is, such as whether staying at VAT rated hotels which can add up pretty quickly if working away during the week for more than a few weeks.

**jmanu** · 29 January 2018, 16:28

My calculations of all costs that could be claimed, this is, equipment, office material, phone, accounting, etc. (travel and accommodation are not included since my company cover them 100%) is around £4k.

So, say my annual turnover before VAT is £90K.
Then the VAT charged would be £18K.
Subtract 16,5% of Flat Rate Scheme, £11,880

That leaves £60,120 in my company.

Surely I got mistakes and I am missing things in the above figures, but just to give an approximation of my current situation.

Given these results, would you advise on going for the Flate Rate or the regular VAT Scheme?

Thanks in advance for all you kind answers.

**Lance** · 29 January 2018, 17:01

Originally posted by jmanu View Post

So, say my annual turnover before VAT is £90K.
Then the VAT charged would be £18K.
Subtract 16,5% of Flat Rate Scheme, £11,880

Nope. That's not right.
£90k + VAT = £108k
16.5% of £108k = £17,820 VAT owed.

so you save £180...

**stek** · 29 January 2018, 17:05

Originally posted by jmanu View Post

My calculations of all costs that could be claimed, this is, equipment, office material, phone, accounting, etc. (travel and accommodation are not included since my company cover them 100%) is around £4k.

So, say my annual turnover before VAT is £90K.
Then the VAT charged would be £18K.
Subtract 16,5% of Flat Rate Scheme, £11,880

That leaves £60,120 in my company.

Surely I got mistakes and I am missing things in the above figures, but just to give an approximation of my current situation.

Given these results, would you advise on going for the Flate Rate or the regular VAT Scheme?

Thanks in advance for all you kind answers.

The VAT you would pay is 90k x 16.5% - that's it. Youco will pocket the 3.5% difference.

On FRS you get 3.5% VAT 'back' and and much easier reporting. Downside is any purchase of less then £2k gross you can't claim the VAT back.

On 'proper' VAT you don't get the 3.5% back, but you get to claim back every little bit of VAT, even on your bacon butty. Downside is onerous VAT return if you claim every little thing, and have lots of receipts to process.

So if you hardly spend on small things, FRS is better, if you buy a lot of crap, proper VAT reporting may be better. For a contractor FRS is generally better. Just make sure any large capital purchases are £2k or over and on one invoice.

**fidot** · 29 January 2018, 17:33

Originally posted by stek View Post

The VAT you would pay is 90k x 16.5% - that's it. Youco will pocket the 3.5% difference..

No, it's 16.5% of the VAT inclusive figure (i.e £108K)

**MrButton** · 29 January 2018, 18:08

Originally posted by fidot View Post

No, it's 16.5% of the VAT inclusive figure (i.e £108K)

Exactly.

This seems to be a common mistake.

**MrButton** · 29 January 2018, 18:13

Originally posted by Lance View Post

Nope. That's not right.
£90k + VAT = £108k
16.5% of £108k = £17,820 VAT owed.

so you save £180...

And if you get the 1% discount for the first year then it’s £16,740 owed. So £1,260 profit from the FRS.

So if your vat claimable expenses are likely to be above £6,300 (with claimable £1,260 VAT) then go standard.

Also remember if your in FRS you can still claim vat back on big purchases more than £2k. Read the guide on this.

For me it’s worked out best to go FRS for just the first year. But you need to do your own forecasts.

Flat Rate Scheme for IT contractor?