Flat Rate VAT scheme

[gingerjedi]

This is in the wrong section, general is for house prices, global warming and doom... not serious contract related questions.

[houmie]

Oh dear.

I'll let someone else take this.

I seriously don't get it. If you have nothing to contribute, why do you bother?
I think the signature of TCL really goes with you:
"I'm sorry, I can't hear you over the sound of how awesome I am"

To the the rest many thanks for the explanation, I haven't even started an Ltd. and would be a first-time-contractor. Everything is new to me and I am just trying to learn and understand how things work.

Special thanks to TCL, DaveB and eazy for the detailed explanation.

As conclusion I would summarize it this way:

Taking the hypothetical £300 a day,

£300 p/d. 20 days per month = £6000.
VAT @ 15% = £900
Invoice total = £6900

10.5% to be paid to HMRC = £724.50
if no Flat Rate Schema you would have to pay HMRC = £1035
Profit in case of flat rate scheme = £310.5 per month
£310.5 * 11 (a month holiday not included) = £3415 annual profit

In that case a contractor has to see how much business outgoings and capital expenditure one will have and which one would be more worth it.
Since a contractor has not much to buy to start the business, the flat rate scheme would be definitive worth it. And if the capital expenditure is even above £2000, you still could still expense that bit over the limit, which is a bonus.

You guys agree on this?
Thanks

[DaveB]

I seriously don't get it. If you have nothing to contribute, why do you bother?
I think the signature of TCL really goes with you:
"I'm sorry, I can't hear you over the sound of how awesome I am"

To the the rest many thanks for the explanation, I haven't even started an Ltd. and would be a first-time-contractor. Everything is new to me and I am just trying to learn and understand how things work.

Special thanks to TCL, DaveB and eazy for the detailed explanation.

As conclusion I would summarize it this way:

Taking the hypothetical £300 a day,

£300 p/d. 20 days per month = £6000.
VAT @ 15% = £900
Invoice total = £6900

10.5% to be paid to HMRC = £724.50
if no Flat Rate Schema you would have to pay HMRC = £1035
Profit in case of flat rate scheme = £310.5 per month
£310.5 * 11 (a month holiday not included) = £3415 annual profit

In that case a contractor has to see how much business outgoings and capital expenditure one will have and which one would be more worth it.
Since a contractor has not much to buy to start the business, the flat rate scheme would be definitive worth it. And if the capital expenditure is even above £2000, you still could still expense that bit over the limit, which is a bonus.

You guys agree on this?
Thanks

Not quite. If you are not on the FRS you simply pay the VAT you charge to HMRC, so you invoice for 6000+vat = 6900. Pay HMRC 900 and keep the 6000.

[Pinto]

No, that's not right. If you're not on the FRS, you pay 15% on the net amount, ie. £900 as in the worked example.

[EternalOptimist]

I pay 11.5 NOT 10.5 % or 11%
i will clarify this with my accountant

[TCL]

Special thanks to TCL, DaveB and eazy for the detailed explanation.

Dont mention it, we all started somewhere. That said, don't take it personally - there is a general culture of p1$$-taking round here, specially for new folks.

Also, to re-iterate as it seems there is some confusion:
Under FRS, an IT contractor normally repays 11.5% (under current regs that is, its likely to revert back to 13% when the standard VAT rate goes back to 17.5% come 2010). However there is a 1% reduction for new ltdcos for the first 12 months of being VAT registered, so in reality it would be 10.5% for you.

Further details on FRS here: http://www.hmrc.gov.uk/vat/account-flat.htm

Best of luck




This thread should go to Accounting/Legal - admins?

[Platypus]

I seriously don't get it. If you have nothing to contribute, why do you bother?

A brief word of advice:
If you post in Legal, Business or Technical, you will get sensible answers, with minimal sarcasm. If you post in General you will get facetious answers and lots of sarcasm.

That's the way it is around here.

[houmie]

Not quite. If you are not on the FRS you simply pay the VAT you charge to HMRC, so you invoice for 6000+vat = 6900. Pay HMRC 900 and keep the 6000.

Oh yes you guys are right.

So if I am not on flat rate scheme I would pay just the 15% of total that is £900.

In this case the difference between being on flat rate scheme and not being on it is:

£900 - £724.50 = £175.5 per month and for 11 months = £1930 profit

Hmmm I now wonder if its worth it for the first year, since I might need my own laptop for contracting (working on client site), maybe need also a printer and a new mobile phone and of course a license of MS Visual Studio software etc. It all depends if the hardware and software will be provided for me from the client or not. If it is provided then Flat rate is still a better deal I suppose.

P.S. Sorry I didn't now about it. I won't post anything serious in "general" anymore. But it seemed to me that the sub-forum "Light Relief" is meant for off-topic talk at first.

[Pinto]

I pay 11.5 NOT 10.5 % or 11%
i will clarify this with my accountant

10.5% is for the first year. After that it's 11.5%.

[Moscow Mule]

Oh yes you guys are right.

So if I am not on flat rate scheme I would pay just the 15% of total that is £900.

In this case the difference between being on flat rate scheme and not being on it is:

£900 - £724.50 = £175.5 per month and for 11 months = £1930 profit

Hmmm I now wonder if its worth it for the first year, since I might need my own laptop for contracting (working on client site), maybe need also a printer and a new mobile phone and of course a license of MS Visual Studio software etc. It all depends if the hardware and software will be provided for me from the client or not. If it is provided then Flat rate is still a better deal I suppose.

P.S. Sorry I didn't now about it. I won't post anything serious in "general" anymore. But it seemed to me that the sub-forum "Light Relief" is meant for off-topic talk at first.

You can pick when you go onto the FRS, so buy all the hardware etc you need in the first couple of months of VAT registration, then go on the FRS.