Flat rate scheme

[mediocre genius]

I'm looking at setting up a ltd for my first contract and would like to take advantage of the flat rate VAT scheme if possible. The only "issue" is that the daily rate is very good, and if I did a year in the contract my annual earnings before VAT would be well over £150k so I wouldn't be able to join the scheme (yes, I know it's a nice problem to have!).

The initial contract is only for 6 months so could I legitimately argue that I'm not forecasting earnings over £150k as I don't have enough contracted revenue to base that on?

The likelihood is it will be renewed, but for business planning purposes it seems prudent to base my forecasts on signed contracts rather than expectations. Especially as this particular contract is around £200 per day more than others I've seen so if I didn't get extended at 6 months I'd be very unlikely to go over the £150k mark, even if I got into another contract immediately.

[Clare@InTouch]

You could apply anyway as the application asks for your expected turnover. If your turnover is expected to be less than the limit you should be accepted on to the scheme. HMRC may well then write to you at a later date to say they are removing you as they will extrapolate figures from submitted returns, but all you'll have to do is appeal on the grounds that you are not expecting that level of income to continue.

[DaveB]

I'm looking at setting up a ltd for my first contract and would like to take advantage of the flat rate VAT scheme if possible. The only "issue" is that the daily rate is very good, and if I did a year in the contract my annual earnings before VAT would be well over £150k so I wouldn't be able to join the scheme (yes, I know it's a nice problem to have!).

The initial contract is only for 6 months so could I legitimately argue that I'm not forecasting earnings over £150k as I don't have enough contracted revenue to base that on?

The likelihood is it will be renewed, but for business planning purposes it seems prudent to base my forecasts on signed contracts rather than expectations. Especially as this particular contract is around £200 per day more than others I've seen so if I didn't get extended at 6 months I'd be very unlikely to go over the £150k mark, even if I got into another contract immediately.

You have nothing other than your current contract on which to predict your earnings, you can't assume an extension will happen. Normally you would make an assumption based on past turnover as a projection for future turnover but you can't do that as a new business.

Once you are in the scheme you are able to stay in unless you go over £230,000 turnover so I would say it shouldn't be a problem. Give the VAT helpline a call and see what they say, contrary to the IR side the VAT people are very helpful and professional, as long as you don't piss them off. Then they stop being helpful.

[ContrataxLtd]

I'm looking at setting up a ltd for my first contract and would like to take advantage of the flat rate VAT scheme if possible. The only "issue" is that the daily rate is very good, and if I did a year in the contract my annual earnings before VAT would be well over £150k so I wouldn't be able to join the scheme (yes, I know it's a nice problem to have!).

The initial contract is only for 6 months so could I legitimately argue that I'm not forecasting earnings over £150k as I don't have enough contracted revenue to base that on?

The likelihood is it will be renewed, but for business planning purposes it seems prudent to base my forecasts on signed contracts rather than expectations. Especially as this particular contract is around £200 per day more than others I've seen so if I didn't get extended at 6 months I'd be very unlikely to go over the £150k mark, even if I got into another contract immediately.

It's a very nice problem to have, congratulations on being able to command such a high daily rate

Personally, I'd be putting in an application to join using a prudent estimation of your likely turnover for the next 12 months taking into account holidays and possible bench time. Even @ £650p/d working 5 days a week for 46 weeks of the year (a very generous estimate of working weeks) you would only turnover £149,500 so still be eligible for the scheme.

Once on the scheme you should only have to leave if at the anniversary of being on the scheme your VAT inclusive turnover exceeded £230,000 (about £191,000 net) for the preceding year.

Once you leave the scheme you can't re join it for the next 12 months.

Martin
Contratax Ltd

[Martin at NixonWilliams]

The initial contract is only for 6 months so could I legitimately argue that I'm not forecasting earnings over £150k as I don't have enough contracted revenue to base that on?

My advice would be to join the scheme. It seems as though you have enough to demonstrate that you had a reasonable expectation for the turnover to be less than £150,000.

Once you are on the scheme, you do not need to leave the scheme until your gross income exceeds £230,000. HMRC will gather this information from box 6 of your returns, looking back at the previous 12 months with each return that is submitted.

I hope this helps.

Martin

[TheCyclingProgrammer]

You have a 6 month contract, therefore no reason to expect at this point that you will exceed the threshold.

So to echo everybody else, you should do it. Assuming, based on your figures, a turnover of £75k over 6 months and the normal IT flat rate of 14.5%, discounted by 1%, you're looking at flat rate surplus of £2850 (£75k * 1.2 * 0.865 - £75k). Assuming your input VAT over this period is minimal to nothing, that's going to be a tidy profit for the effort of registering.

[Martin at NixonWilliams]

To add to the above - You can only reclaim VAT on capital expenditure in excess of £2,000. If you have any capital expenditure to make (such as a computer) before starting the contract, and they each have a value of less than £2,000, it could be worth delaying the flat rate registration slightly to reclaim the VAT on those purchases.