Reply to: [Tax panning][VAT][17/18] Which VAT scheme for an IT contractor?

[Yorkie62]

For what it's worth. My aacountant is recommending I deregister from the flat rate vat scheme as of April 17. In addition to this I asked about reclaiming vat on milage fuel which apparently I can do providing I have vat receipts to back this up.

So on say a 100 mile company journey. Using hmrc rates for milage fuel, i.e. 11p per mile Fuel costs would be £11 including vat. Therefore I would be able to reclaim £1.84 per 100 miles. Extrapolate this to the 10k mile per annum you get £184 of reclaimed VAT.

Almost make deregistration worth it on its own.

[northernladuk]

Just out of curiosity. I don’t have accountant. Do you northernladuk imply in that case I am not allowed to ask questions? Accountants I tried are just a waste of money and time. I think it is reasonable in contractor’s tax section to ask questions about accounting and taxes. If you don’t like that topic, feel free to comment in general section.

I don't expect someone come on and expect us to set up their business for them. If it wasn't for a couple of accountants that give their time this would be just a forum of your peers. Great place to discuss yes, but not to get expert opinion. You also only get an answer to the exact question, both OPs questions were pretty complex and missed a lot of content and detail which is why both threads got so convoluted I can't see he got an answer he was comfortable with.

I'd say you need to start a thread asking why you can't pick a decent accountant unless you are one of the very few on here that are competent enough to do it yourself. A good accountant saves you both money and time. Mine is worth it just for not buggering about with Vat and other returns and FreeAgent let alone the other services.

[AndrewK]

Just out of curiosity. I don’t have accountant. Do you northernladuk imply in that case I am not allowed to ask questions? Accountants I tried are just a waste of money and time. I think it is reasonable in contractor’s tax section to ask questions about accounting and taxes. If you don’t like that topic, feel free to comment in general section.

[northernladuk]

I wonder what the OP is taking away from both of his two threads. Both got so complicated there was no clear answer but didn't engage with us again in either.

[TheCyclingProgrammer]

It isn't a tax grab. FRS was intended to simplify VAT for smaller businesses, not for smaller businesses to make a profit on.

True, but the percentages were also set for each business category so that businesses should still indirectly recover their input VAT costs through the surplus they get to keep. The new rate breaks that as it excludes a range of costs for no good reason.

[chopper]

That's what I'm saying too - based on a 220 day year at 500/day, you're down £2,640 in the next financial year from this tax grab.

It isn't a tax grab. FRS was intended to simplify VAT for smaller businesses, not for smaller businesses to make a profit on.

It means our business model as a smaller business, we're better outside FRS and on the standard scheme from April.

[TheCyclingProgrammer]

The graded Flat rate vat percentages have been scrapped so 14.5% last year becomes 16.5% this Tax year, which I am advised cancels out most financial benefits.

That's not quite right...nothing has been scrapped as such, the new 16.5% rate only applies to "low cost traders". Which, unfortunately, going by HMRC's definition of "low cost' (services, capital expenses and subsistence do not count) includes most of us.

[TheCyclingProgrammer]

Honestly, stick to the standard scheme. I know the legislation isn't finalised regarding the FRS changes but I'm doubtful it will change in any significant way. Unless your expenses are < approx. £1k you'll be better off financially on the standard scheme, even if it requires a bit more paperwork and VAT receipt keeping.

[teapot418]

Don't forget the 1% discount in the first year of trading on FRS, which might just about make it worth doing.

[MoroccanMole]

Atanas - you are perhaps getting conflicting information as previously, under the old system the Flat Rate VAT scheme offered a small profit for most contractors over using the standard system.

However, the last budget introduced changes to the %rates, so under the current system where you charge 20% and only provide say, 13% to Customs and Exercise, from April 2017 onwards, the Flat Rate VAT Scheme has essentially been scrapped so everybody, regardless of the older % rates, is shoved onto paying 16.5% charged.

The numbers have been crunched by persons and this percentage gain is so small (once corporation tax is taken into account) that contractor's are being advised to switch to the normal VAT system (20% in / 20% out).

Guidance notes are probably still catching up - search the forum for the latest information or speak to your accountant. Or get one, if you don't have one. They will save you more in tax than they cost in fees......

[LondonManc]

The graded Flat rate vat percentages have been scrapped so 14.5% last year becomes 16.5% this Tax year, which I am advised cancels out most financial benefits.

That's what I'm saying too - based on a 220 day year at 500/day, you're down £2,640 in the next financial year from this tax grab.

[MoroccanMole]

I presented some calculations on here the other week showing what you keep for collecting VAT based on £500/day
14.5% - £13
16.5% - £1

The problem with knowing your turnover is that you won't know if it's going to hit 83k until second half of the year in most cases.

The graded Flat rate vat percentages have been scrapped so 14.5% last year becomes 16.5% this Tax year, which I am advised cancels out most financial benefits.

[LondonManc]

There are three VAT schemes, and post April 2017, the FRS loses any financial benefit, unless you count ease of processing. The other (cannot recall the name) is for used car dealers.

If your turnover is more than £83k, you charge 20% on your invoices and pay it to the C&E, and reclaim VAT on allowable expenses.

I presented some calculations on here the other week showing what you keep for collecting VAT based on £500/day
14.5% - £13
16.5% - £1

The problem with knowing your turnover is that you won't know if it's going to hit 83k until second half of the year in most cases.

[MoroccanMole]

Hi all,

I am about to open my company and I am bewildered by all the different VAT schemes. I am an IT contractor and I will not have many expenses going through the company, maybe £2-3K per year for travel and sustenance, a new laptop for £1.5K, maybe a new desktop ~ £500.

Is it better to be on the standard cash accounting scheme? For the flat one I know I can't reclaim VAT on purchases under 2K so I won't be able to reclaim much.

Cheers

PS: Has anybody taken you aside and explained the IR35 regulations to you..........?

[MoroccanMole]

There are three VAT schemes, and post April 2017, the FRS loses any financial benefit, unless you count ease of processing. The other (cannot recall the name) is for used car dealers.

If your turnover is more than £83k, you charge 20% on your invoices and pay it to the C&E, and reclaim VAT on allowable expenses.