Most contractors will pay 14.5% of their VAT inclusive turnover to HMRC with a special rate of 13.5% in the first year.
So how does it work?
If you invoice your services at £350 per day (excluding VAT) for 225 days in a year you will charge £15,750 of VAT to your customers. When you complete your VAT return in the standard way, you will pay VAT of £15,750 less any VAT on purchases to HMRC. If you are a contractor with minimal expenses, or largely VAT free train travel expenses then you will pay £15,750 to HMRC.
How does the VAT Flat Rate Scheme work?
If you use the VAT flat rate scheme you invoice your customers in the same way, charging £15,750 of VAT. When you complete your VAT return you apply your percentage, 14.5% or 13.5% to the value of your VAT inclusive invoices.
Under the Flat Rate Scheme you would pay over VAT of £12,757.50 (at 13.5%) in the first year and £13,702.50 (at 14.5%) in the second year to HMRC.
What savings could I make?
In addition to saving time and making your administration more simple you would save £2,992.50 in the first year and £2,047.50 in the second year.
How do you apply?
If you have annual turnover (excluding VAT) of £150,000 or less you can complete theVAT Flat Rate Scheme form available from HMRC.
There are other special schemes available from HMRC; however at Clearways Accountants we find the Flat Rate Scheme is the most useful. If you would like to know more about the other schemes then you can follow the link to the HMRC website or contact us directly for advice on the most efficient way to handle your VAT obligations.