Flat Rate Scheme for VAT

The Flat Rate Scheme for VAT is a popular scheme for Freelancers and Contractors.

The aim of the scheme is to make your VAT administration simpler, allowing you to run your freelancing business easier.

You charge VAT on your invoices at 20% (2011) you can not reclaim VAT on your expenses (input VAT) but instead you pay a reduced rate over to HMRC which is dependent on your trade.

For example IT contractors (2011) pay FRS vat in their first year at 13.5% (there is a 1% discount in the first year) then 14.5% in subsequent years. This should provide you with substantially more income per year, and is the best scheme for most Freelancers and Contractors. But you must be aware that there are certain pit falls which could cost you money. For example if you have lots of VAT chargeable expenses or you subcontract work, you will miss out on reclaiming VAT.

You also need to be aware that if your turnover exceeds £150,000 in the first year you will not be eligible to join the scheme and in subsequent years if your turnover exceeds £230,000 of VAT inclusive revenue then you must come off the scheme.

Flat Rate Scheme percentage rates from 4th January 2011:

Category of business	Appropriate percentage
Accountancy or book-keeping	14.5
Advertising	11
Agricultural services	11
Any other activity not listed elsewhere	12
Architect, civil and structural engineer or surveyor	14.5
Boarding or care of animals	12
Business services that are not listed elsewhere	12
Catering services including restaurants and takeaways	12.5
Computer and IT consultancy or data processing	14.5
Computer repair services	10.5
Dealing in waste or scrap	10.5
Entertainment or journalism	12.5
Estate agency or property management services	12
Farming or agriculture that is not listed elsewhere	6.5
Film, radio, television or video production	13
Financial services	13.5
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
Management consultancy	14
Manufacturing fabricated metal products	10.5
Manufacturing food	9
Manufacturing that is not listed elsewhere	9.5
Manufacturing yarn, textiles or clothing	9
Membership organisation	8
Mining or quarrying	10
Packaging	9
Photography	11
Post offices	5
Printing	8.5
Publishing	11
Pubs	6.5
Real estate activity not listed elsewhere	14
Repairing personal or household goods	10
Repairing vehicles	8.5
Retailing food, confectionary, tobacco, newspapers or children's clothing	4
Retailing pharmaceuticals, medical goods, cosmetics or toiletries	8
Retailing that is not listed elsewhere	7.5
Retailing vehicles or fuel	6.5
Secretarial services	13
Social work	11
Sport or recreation	8.5
Transport or storage, including couriers, freight, removals and taxis	10
Travel agency	10.5
Veterinary medicine	11
Wholesaling agricultural products	8
Wholesaling food	7.5
Wholesaling that is not listed elsewhere	8.5

Always discuss your VAT situation with your accountant before registering for VAT or applying for a specific scheme.

Freelancer Accounting can provide specialist advice on VAT according to your circumstances.

Freelancer Accounting is a specialist provider of fixed fee accountancy services to Freelancers and Contractors in London and the South East of England.

We understand that tax is complicated and are happy to offer you face to face meetings at one of our office locations convenient to you.

You will have your own dedicated accountant as a point of contact.

We are accredited by the Professional Contractors Group (PCG) and are an ACCA Practice, so you never have to worry about you tax and accounting affairs again.

If you are thinking of contracting or an existing contractor with questions and would like further advice, please do not hesitate to call your local FreelancerAccounting office on 0800 1357157 or email martyn@freelanceraccounting.com