VAT for consultancy work?

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  • Blackbeard_of_Perranporth
    Blackbeard_of_Perranporth Posts: 7,605 Forumite
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    As a consultant I am registered for VAT at the flat rate of 16.5%. I suggest OP gets an accountant..
  • TheCyclingProgrammer
    TheCyclingProgrammer Posts: 3,702 Forumite
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    Blackbeard_of_Perranporth wrote: »
    As a consultant I am registered for VAT at the flat rate of 16.5%. I suggest OP gets an accountant..

    Any reason why you are using the FRS at the limited cost trader rate? You must surely be losing out (the input VAT on your accountancy fees must be more than the FRS surplus alone). Standard VAT isn't that much more paperwork.
  • Pennywise
    Pennywise Posts: 13,468 Forumite
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    TheCyclingProgrammer wrote: »
    Any reason why you are using the FRS at the limited cost trader rate? You must surely be losing out (the input VAT on your accountancy fees must be more than the FRS surplus alone). Standard VAT isn't that much more paperwork.

    Not all accountants are VAT registered :j
  • TheCyclingProgrammer
    TheCyclingProgrammer Posts: 3,702 Forumite
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    Pennywise wrote: »
    Not all accountants are VAT registered :j

    Fair point, although I imagine many of them are. IIRC the FRS surplus at the limited cost rate is £100 on £100k net turnover so you'd only need more than £500 of VAT-able expenses at that turnover level to be losing out. As chrismac1 said, nobody is better off at 16.5% (especially as "limited costs" makes no accounting for service costs).
  • 00ec25
    00ec25 Posts: 9,123 Forumite
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    edited 13 November 2018 at 4:32PM
    TheCyclingProgrammer wrote: »
    Any reason why you are using the FRS at the limited cost trader rate? You must surely be losing out (the input VAT on your accountancy fees must be more than the FRS surplus alone). Standard VAT isn't that much more paperwork.
    you may (or may not) be surprised at how many of our consultant clients remain on LCT simply because the "extra" paperwork admin required is, in their eyes, not a cost effective use of their time

    I have to say, having seen some attempts at record keeping by some of them, and thus having wholesale rejected their VAT claims, it is an attitude I won't argue with in many cases. Typically those with £100 - £200k turnover still able to claim travel and subsistence costs for <2 year contracts. Yes the admin required to record a mixed rate food claim is counter productive when your client chargeout rate is in the £000 per hour and they do their own bookkeeping (and won't pay others to do it for them)
  • Pennywise
    Pennywise Posts: 13,468 Forumite
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    The initial aim of the flat rate scheme was to simplify book-keeping, not to make a profit. The fact that people joined to make a profit is exactly the reason why the limited cost trader rule was introduced. The FRS remains a very valuable "tool" for people who have neither the inclination, time or ability to deal with VAT on their expenses/purchases. Yes, "we" all know how easy we find VAT record keeping, but for a lot of people, especially business owners without book-keepers, they just don't want another thing to have to learn and worry about, so they're happy not to make a profit and use the simple FRS scheme instead.
  • TheCyclingProgrammer
    TheCyclingProgrammer Posts: 3,702 Forumite
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    Pennywise wrote: »
    The initial aim of the flat rate scheme was to simplify book-keeping, not to make a profit. The fact that people joined to make a profit is exactly the reason why the limited cost trader rule was introduced..

    I'm aware of that, however it was also completely counter-productive for businesses who do have limited "goods" costs but not necessarily limited "services" costs. For those people, it's not just about no longer making a profit, but actually making a net loss in VAT terms.
  • chrismac1
    chrismac1 Posts: 2,585 Forumite
    Whilst I agree in principle with what Pennywise has said, in practice every single limited company contractor client of mine - around 30 - has been better off in "normal" VAT and not the 16.5% flat rate.


    This is without taking into consideration things like fixed asset purchases, which can be a real hassle in flat rate VAT due to the £2,000 rule, and the other tricky aspects of FRS such as having rental and other "exempt" income.


    So, unfortunately, I repeat that it is a no-brainer to leave the flat rate scheme if the rate is 16.5% or higher.
    Hideous Muddles from Right Charlies
  • chrismac1
    chrismac1 Posts: 2,585 Forumite
    edited 14 November 2018 at 10:41AM
    Some of my clients, despite my advice, stayed on the 16.5% rate. I'm just doing one October return today, the first back in "normal" VAT. The guy is over £200 better off this quarter by leaving flat rate VAT. And this is a standard quarter, no fixed assets or other unusual standard rated purchases claimed for in "normal" VAT.

    Surely £800 per year is not worth it?
    Hideous Muddles from Right Charlies
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