VAT Flat Rate Scheme now attractive for IT consultants

The flat rate VAT percentage applying to IT consultants has dropped from 14.5% to 13% with effect from 1st January.If your turnover is under 150,000 pa you will be eligible to join and we feel that this is now well worth considering.For example, a contractor with a turnover of 50,000 pa will be able to claim 1112.50 pa in input tax, compared with just 231 pa before the changes.For new registrations there is an additional 1% discount for 12 months.The calculation works as follows:Sales
Add VAT at the usual rate of 17.5%
Equals gross sales.You then take 13% of that figure and that is the amount you have to pay to Customs and Excise for VAT each quarter. You will no longer claim VAT on expenses.To decide whether you wish to join the scheme, take your current turnover, apply the formula as above and compare that with how much VAT you currently claim on expenses. Judging by the average claim, it would seem well worth joining.

To join the scheme, you need to complete and submit form VAT 600 FRS which is available here:

There is also a useful calculator which is here:

We would recommend that clients elect to join from the beginning of their first VAT period commencing after 31st December 2003 (ie 1st January, 1st February, or 1st March 2004). The scheme may not be used until Customs & Excise have approved your application, but approval once issued will be from the date you have requested.If you do join the scheme the only change you need to make is to stop claiming VAT on your expenses, so on your spreadsheet you will show the gross amounts in the expenses columns. You will still raise a VAT invoice to your customers in the usual way and for the usual 17.5% amount.For those clients caught by IR35, the deemed salary will be calculated on the gross turnover reduced by 13%, so the saving before input tax will be fully taxed under IR35. You are currently free to leave the scheme at any time. If you do decide to join the scheme, please do notify us so that we can correctly complete your VAT returns next time.

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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: 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. 

You may also find the following pages, guides and case studies useful:

*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.