Accounting, Taxation

Re-considering the VAT Flat Rate Scheme

You must have heard and/or read about the changes to the VAT flat rate scheme (FRS) effective 01 April 2017. To summarise, if your cost of sales is less than either 2% of your sales OR £1000 per year, your flat rate will be 16.5%.

I won’t go into why this new directive was implemented but suffice it to say that most, if not all, service freelancers (IT consultants, project managers, locums, etc) on FRS will be affected.

Note that cost of sales for the FRS’s purpose includes only moveable goods used in your business and gas/electricity. Expenses such as travel, telephone, accountancy fees and all other services are excluded.

Consider the following:

  • You bill a customer for £1,000, adding VAT at 20% to make £1,200 in total.
    Using the 16.5% rate,  your flat rate payment will be 16.5% of £1,200, or £198.

Essentially, you ‘made’ £2 that must be accounted for in your tax return but you’ve not been allowed to claim back any VAT on expenses. If you keep a record of those unclaimed VAT, it may transpire that FRS isn’t the best system for you. Consequently, a standard rate or deregistration may be more tax-efficient. Don’t forget to factor in the time spent on quarterly returns.

As far as I can see, the days of FRS VAT registrations are numbered.

About Phoenix

Accountant | Tax Specialist | Quickbooks ProAdvisor Online


No comments yet.

Get in touch

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s


Enter your email address to receive notifications of new posts by email.

Join 1,253 other followers


0044 780 370 4496
0044 207 059 2442

Phoenix Debola is licensed and regulated by AAT to provide services in accordance with licence number 1000701 details of which are displayed at the address shown. AAT is recognised by HM Treasury to supervise compliance with the Money Laundering Regulations and Phoenix Debola Cloud Accountancy Practice is supervised by AAT in this respect.

%d bloggers like this: