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Banking, Investments & Savings for Contractors & Ltd Companies.
The government incentivise small businesses by way of the Flat Rate VAT scheme. It also helps a limited company simplify its administration. The limited company charges its client 20% VAT but only has to pay HMRC 13.5% (14.5% from the second year onwards).
The Flat Rate scheme has variable rates depending on your industry. We will discuss the rate that affects you when we discuss all your specific accountancy requirements.
On a daily rate of £300, and assuming you work 46 weeks a year, you will earn an extra £3,000 thanks to the VAT Flat Rate scheme.
It's hardly a surprise that most contractors choose this scheme.
Limited companies which operate the VAT Flat Rate scheme cannot claim back VAT on purchases for their company, which is a minor drawback. The exception to this is that you can claim back VAT on capital asset outlay like computers (the cost has to be over £2,000 per single receipt).
Your limited company will still have to complete quarterly VAT Returns. The payment is a simple flat rate of 13.5% of your turnover for that quarter - even though you'll charge your clients 20%.
The difference is profit for your limited company.
It's a win-win situation for you and HMRC. You will earn a substantial amount extra every year and HMRC have a lot less paperwork and red-tape to handle.
The Flat Rate scheme isn't suitable for those limited companies that buy a lot of stock each year, because they cannot reclaim the VAT on purchases.