Flat Rate VAT @ 16.5% for 'Limited cost Traders'

[Inception]

Hello

I'm in the middle of setting up a Ltd again after a few years in permie land and see that the rate for most IT contractors seems to 16.5% (with no 1% discount in your first year either to sweeten the pill). Reading up on it it seems that so long as you spend at least 2% of the value of your sales on goods you can declare yourself on 14.5% (13.5% in the first year). Given that I need to buy some items (a company Laptop primarily) which will account for ~ 2% of my 1st years turnover can I initially jump of this bandwagon for the 1st year. get the benefit and then next year move over to 16.5% (or even come off the Flat rate if the numbers no longer add up).

Also I believe you can opt to do a single VAT return a year (rather than quarterly) which would align well with this?

Cheers

[malvolio]

Obvious question - what does your accountant say (just to beat NL:UK to the punch...)

Seriously though, you need to do the sums properly. Flat rate VAT is a convenience, but in reality it can cost you money. It's not all about capital purchases, but depends on your expenses and VATable outgoings. For example, your accountant will be charging VAT, as will any accommodation and/or travel costs, licences, telecomms and the rest, so they do add up.

Using a tool such as Freeagent does all the donkey work, so quarterly or annual are pretty irrelevant.

And always remember VAT is never your money, you merely handle it on behalf of HMRC - which is why I've never bothered with Flat Rate.

[WTFH]

I'm pretty much in agreement with malvolio. I've never bothered with Flat Rate because I tend to have periods of high expenses and it's simpler just to look at an invoice and see VAT as an in and out transactions without having to calculate is it 13.5%, 14.5%, 16.5%, 20%,...
I guess if you knew you would have one contract for a year and it was always WFH, then maybe flat rate for first year is an option. But as per your previous questions, and the advice given my mal, and the advice on the government web page about it, ask your accountant and go through the numbers with them.

[ladymuck]

It could be worth it for the first year discount, after which you're most likely better off switching to the standard scheme. I do an occasional comparison and, for the most part, have always been better off on the standard scheme. Some years there's less in it than others.

[Inception]

It certainly does seem like FR VAT is no longer attractive for IT contractors, no saving (time or money, as FA does all of the legwork - you cant claim vat back on tech needed for the business - and the 16.5% means you get no benefit from making the VAT mans life easier). I see that you dont need to register until your income exceeds 90K, i may just stay unregistered and worry about it if/when i approach the threshold.

[malvolio]

.......
I see that you dont need to register until your income exceeds 90K, i may just stay unregistered and worry about it if/when i approach the threshold.

If you do, make sure your invoices show that VAT registration is pending, so you can eventually recover the VAT on your start up and operational costs.

Better still, have a good read of the guidance on VAT on the right of the title page

[Craig@Clarity]

Yeah, pretty much agree with what everyone else has said above. The limited cost trader rate was introduced to stop the sector from milking the scheme. These days, being on the 16.5% will, on average, cost you around £100 compared to being on the standard rate scheme. You have to weigh up the administration burden of using the flat rate scheme v standard rate scheme, but to be honest, Freeagent and the like takes all that pain away anyway.

Bear in mind, under the flat rate scheme, you can't claim the VAT back on your laptop purchases etc. unless you fulfil the criteria so standard rate scheme may be your better option to consider.

[Inception]

Thanks All.

Also given that I won't be putting any VAT reclaims through the books for at least the 1st 6-9 months I see no need to register for VAT until my turnover exceeds the specified 90k threshold, its just increased admin for me with no reciprecol benefit until then AFAICT?

[malvolio]

Thanks All.

Also given that I won't be putting any VAT reclaims through the books for at least the 1st 6-9 months I see no need to register for VAT until my turnover exceeds the specified 90k threshold, its just increased admin for me with no reciprecol benefit until then AFAICT?

Well there's 20% off any office type purchases...

[Inception]

I'm selling a bunch of my personally owned kit to my Ltd (laptop, phone, desk etc) so wont be buying anything until at leat 6 months down the line (if I was then it would be a no brainer to register sooner), planning on getting an M5 MBP when thay surfaces so that will prob be towards the end of the year.