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Life is hectic for limited company directors, so opportunities to ease your administrative burdens should be celebrated. With the introduction of the Flat Rate VAT Scheme, HMRC endeavoured to simplify that VAT process for contractors and help to save money.
We’ve put together a guide to help you better understand your options when it comes to VAT.
The Flat Rate Scheme is a simplified method for eligible businesses to work out their VAT liability by applying a fixed rate percentage, based on the trade or profession to the VAT inclusive turnover. Under this method any VAT reclaimable is restricted (except on capital equipment greater than £2000).
The scheme has its advantages, but depending on the unique workings of your company, may not be the best solution. Any business who expects their turnover before VAT to be more than £150,000 should not join the scheme. Conversely, if your annual turnover is likely to be more than £230,000 including VAT in subsequent years, this will also render you ineligible to join.
If you join the Flat Rate VAT Scheme, you will not be able to claim any VAT back on business purchases or expenses, but it is possible to claim VAT back on capital assets where the total bill has been more than £2,000. You can claim for a selection of items, which adds up to this sum, but they must all be purchased at the same time and shown on the same receipt in order to qualify to reclaim VAT in these circumstances.
The table below shows HMRC’s comprehensive list of VAT rates by industry:
|Type of business||Current VAT Flat rate (%)|
|Accountancy or book-keeping||14.5|
|Any other activity listed elsewhere||12|
|Architect, civil and structural engineer or surveyor||14.5|
|Boarding or care of animals||12|
|Business services not listed elsewhere||12|
|Catering services including restaurants & takeaways||12.5|
|Computer and IT consultancy or data processing||14.5|
|Computer repair services||10.5|
|Entertainment or journalism||12.5|
|Estate agency or property management services||12|
|Farming or agriculture not listed elsewhere||6.5|
|Film, radio, television or video production||13|
|Forestry or fishing||10.5|
|General building or construction services||9.5|
|Hairdressing or other beauty treatment services||13|
|Hiring or renting goods||9.5|
|Hotel or accommodation||10.5|
|Investigation or security||12|
|Labour-only building or construction services||14.5|
|Laundry or dry-cleaning services||12|
|Lawyer or legal services||14.5|
|Library, archive, museum or other cultural activity||9.5|
|Manufacturing fabricated metal products||10.5|
|Manufacturing not listed elsewhere||9.5|
|Manufacturing yarn, textiles or clothing||9|
|Mining or quarrying||10|
|Real estate activity not listed elsewhere||14|
|Repairing personal or household goods||10|
|Retailing food, confectionery, tobacco, newspapers or children’s clothing||4|
|Retailing pharmaceuticals, medical goods, cosmetics or toiletries||8|
|Retailing not listed elsewhere||7.5|
|Retailin vehicles or fuel||6.5|
|Sport or recreation||8.5|
|Transport or storage, including couriers, freight, removals & taxis||10|
|Wholesaling agricultrual products||8|
|Wholesaling not listed elsewhere||8.5|
Businesses using the Flat Rate Scheme must perform a test each quarter to confirm first if they meet the criteria as a limited cost trader. A limited cost trader is defined as one whose gross expenditure on relevant goods is either:
Goods do not include:
To check if you meet the criteria as a limited cost trader, you can try HMRC’s free tool.
VAT can be a challenging subject, but the Nixon Williams team is here to help. To see how we can best advise you on VAT, you can call one of our best advice team at 01253 362062.