Coming off FRS LCT VAT after Year 1?

[Chart Accountancy]

ok I do have 1 input tax invoice per month, FreeAgent. Buy some stationery once a quarter from Tesco but there is no vat on that (£30). Don't reclaim broadband usage (from house broadband) as use the standard £18.00 per month "use of home allowance" reclaim.

Will check with my FA accountant what she recommends, but was interested to know what seasoned contractors have done - was the purpose of the post. I will be led by my accountant - though the first one I had (local 1 man band) was crap and ditched them to FA. Hindsight.......

The VAT saving if under the standard scheme will be highly likely higher than the FRS when you lose the 1% discount. The standard scheme would require you though to be more organised with recording your VAT claims correctly, and retaining a valid vat invoice for each claim (ideally attaching the receipts in FreeAgent).

[JRCT]

I was on FRS at first when the rate was lower than the current and it was ok - a little bit of money for nothing, really.

I then had my first contract where I had to stay away during the week and stupidly forgot to come off it until about 3 months into the contract. Probably cost me a few hundred quid.

I am now on another contract where I don't have to stay away so back to minimal VAT spend, but still I would stay off it. It's hardly time consuming to work it out, and being off it will make sure you don't cock-up like I did if/ when your situation changes.

[mudskipper]

I've not got round to coming off it yet - expenses are low, so just haven't got round to it.

[gwynfryn]

thanks pr1 you are quite correct.

[pr1]

Yes it is something I will pick up with my Gorilla accountant and see what she advises. Just wondered what others have done in a similar situation. Plus I took some advise from my previous "crap 1 man band accountant" before ditching them for Gorilla so this forum is a good sounding board.

If you're with Gorilla you will earn more from claiming their VAT back (~£50 per quarter) than the £40 per quarter from 16.5% FRS you mentioned in OP - plus any other VAT business expenditure

[gwynfryn]

Yes it is something I will pick up with my Gorilla accountant and see what she advises. Just wondered what others have done in a similar situation. Plus I took some advise from my previous "crap 1 man band accountant" before ditching them for Gorilla so this forum is a good sounding board.

[northernladuk]

Isn't your accountant looking at your books and advising the best option for you?

[gwynfryn]

ok I do have 1 input tax invoice per month, FreeAgent. Buy some stationery once a quarter from Tesco but there is no vat on that (£30). Don't reclaim broadband usage (from house broadband) as use the standard £18.00 per month "use of home allowance" reclaim.

Will check with my FA accountant what she recommends, but was interested to know what seasoned contractors have done - was the purpose of the post. I will be led by my accountant - though the first one I had (local 1 man band) was crap and ditched them to FA. Hindsight.......

[GreenMirror]

I went traditional VAT after year 1. I will never use FRS again.

[Dom at Fox Bartfield]

VAT

Almost all of our guys have gone onto traditional VAT as it tends to be more beneficial. Using Freeagent, we tend to run a comparison to see which would be more beneficial and just about in every case, traditional VAT calculations tend to be better. With the software in place to do the calculations, doesn't really make much difference in terms of time in any case.

[pr1]

Are you sure you have no input VAT?

Accountancy fees? Mobile phone contract? Broadband? You never buy anything through the business?

If so, then staying on 16.5% is better than nothing, but it is definitely work double checking the numbers

[gwynfryn]

I am coming to the end of my first year of contracting, best thing I ever did (should have jumped earlier).

So MyCo is signed up for VAT under Flat Rate Scheme Limited Cost Trader rate with the discount of 1% for year 1 - 15.5% instead of 16.5%

I have not input tax and only provide services charged at VAT standard rate.

So after the year 1 discount goes (MyCo retains approx £300 per qtr in the discounted rate), the retain amount will be approx £40 per qtr.

MyCo is over £85K turnover figure so must be registered for VAT.

Does MyCo suck it up on FRS 16.5% LCT or have others come off the FRS and moved to standard/cash accounting but as MyCo has no input vat then it will be no better off?

Then again £40 per qtr for collecting VAT for HMRC is not such a bad thing?

What have others done?

Thanks