What are your alternatives to the Flat Rate Scheme?

In the 2016 autumn statement, a major change to the Flat Rate VAT Scheme was announced – which came into effect on April 6th, 2017. It’s quite a big change and means that many people who previously used this scheme to their advantage, are now finding that it is far less beneficial. If you are one of those people, or if you are looking at VAT options at the moment, you may want to read on.

What is the Flat Rate Scheme anyway?

Most limited company contractors and freelancers are ‘service based’ businesses – in that they charge money in return for their time. As such, the standard VAT scheme is not really suitable, as they cannot claim VAT back on goods which are bought in as part of their business activity. Which is why many contractors have chosen the Flat Rate VAT Scheme over the years.

With this scheme, contractors and freelancers simply paid a ‘flat rate’ percentage for their VAT, which varied depending on the type of business. For example, someone in the advertising world may only have paid 11% of their VAT-able income, even though they charged VAT at 20%. This not only made working out their VAT far simpler, it also meant they were making a profit on that VAT. But not anymore . . .

How the Flat Rate scheme is changing

With the new scheme, there is a standard rate of 16.5%. This means that anyone who was previously paying a lower rate is now worse off, and the Flat Rate Scheme may be less valuable. There are some exclusions – if you are what HMRC refers to as a ‘limited cost’ business, but for most contractors, the VAT options are now far less beneficial.

So, what should you do next?

If you are not currently VAT registered but need to be, then you have to look at any business purchases you make, and see what VAT you could claim back and whether this would make you better off than the Flat Rate Scheme. And if you are already registered but now fall below the current threshold of £85,000, you may want to think about deregistering altogether.

As always, if you need any further advice please contact your accountant.

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SJD Accountancy

SJD Accountancy are the UK's largest specialist provider of fixed fee, Limited company accountancy services to contractors; we've been acting for contractors across the UK since 1992 and have more than 15,000 clients.

We are the only national specialist firm of contractor accountants with offices nationwide. SJD Accountancy has more qualified staff than any other firm in our market with qualifications from the following major tax and accountancy bodies - ATT, AAT, CTA, ACCA, CA, ACA and FCCA.

  • Unlimited face to face meetings. This is a unique service only SJD Accountancy offers - unlimited face to face meetings across the UK - tax is complicated and sometimes only a meeting will do.
  • UK's largest contractor accountants with more qualified staff. No call centres, no outsourcing, no automated call handling. Simply telephone, email or meet your own dedicated accountant face to face.
  • Money back service guarantee. All your Emails received by 4pm on any normal working day will be answered the same day. Should it be necessary to leave a telephone message it will be answered same day/following day latest or we will make a full refund of that months fee.
  • Outstanding reputation. We have won more awards for customer service and accountancy excellence than any other firm in our market, including: Best Accountant for Contractors, Accountant of the Year and Best Professional Service Team to name just a few.
  • All inclusive low cost fixed fee accountancy package which includes completion of accounts*, payroll bureau, dividends and corporation tax computations, personal taxation, free bookkeeping software, your own dedicated accountant* and all company returns for a fixed fee starting from £120 plus VAT per month. Check our packages for more detail.

If you have any questions about contracting or would like any further advice please call our new business team on 01442 275789 or email: newbusiness@sjdaccountancy.com. Our new business team is open Monday to Thursday (8am to 8pm), Friday (8am to 7pm) and Saturday (10am to 4pm)

Appoint SJD Accountancy and never worry about your tax or accountancy affairs again.

Form your own limited company with SJD - our same day online company formation service includes company bank account set up, VAT/PAYE registration and advice on optimum share structure. 

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*If you would like us to complete your company year end accounts we simply ask that you have been a client of SJD for one year or have made 12 monthly payments. All accountants are part or fully qualified.