Contractor Blog Zone
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In light of last week’s budget and the prospect of increased personal taxes, many of you have been asking about the benefits of registering for the Flat Rate VAT scheme.
Flat Rate VAT is much more straightforward than standard VAT in that you simply add 20% VAT to the invoices you issue, and then pay a lower % of that total invoiced (gross) amount to HMRC. This is best explained using an example:
Monthly invoice issued to agency before VAT registration £3,000
Monthly invoice issued to agency after VAT registration (£3,000 + 20% VAT) £3,600
Amount paid to HMRC (12%* of £3,600) £432
Your monthly gain (£600-£432) £168
Your annual gain (£168 x 12) £2,016
*The percentage used varies between industries within the range of 4-14.5%, but the vast majority of our contractors are on 12% Flat Rate.
The Flat Rate service is an extra service that we offer to all existing CEJ clients, and covers everything from setting you up in the scheme, to calculating and filing your quarterly VAT returns. All you have to do is:
· Agree with your agency that they are happy for you to add VAT to your invoices,
· Register for the scheme (see link below),**
· Start adding 20% VAT to your invoices once we receive your VAT registration number,
· Update your bookkeeping spreadsheet with the invoices you’ve issued by the end of each quarter (we’ll remind you), and finally
· Make a payment to HMRC every 3 months (we'll email you the amounts).
The cost of the VAT service that we offer is £40 + VAT, so if you factor this cost into the above figures, the net gain is (£2,016 less 12 x £48) £1,440. As this is extra profit for you, it would also be liable to Corporation Tax which is currently set at 20%, but due to fall to 18% by 2020. Therefore, after costs and 20% corporation tax, the money left in your pocket is (£1,440 – 20%) £1,152.
This isn’t going mean you can retire any time soon, but it’s pretty much money for nothing so definitely worth thinking about. Plus there are 2 other positive points to note:
1. You can backdate your VAT registration to the beginning of your current contract, and
2. Your flat rate is discounted by 1% for the first 12 months that you’re registered so in the above example, the figure of £1,152 would increase to £1,501 in Year 1.
If you are an existing CEJ client and would like to register for this scheme then click here and we will get it up and running for you.
Or, if you’re not yet a client then the Flat Rate Scheme is included in both our Value and Enterprise Solutions.
** There is an eligibility criteria for flat rate VAT, but it’s rare not to meet this, and we’d go through everything with you before applying to HMRC.