Should my limited company register for the VAT Flat Rate Scheme?
The FRS brings simplicity to a previously troublesome task but weighing up whether the scheme is right for your limited company is far from straightforward.
The fixed percentages at which companies pay VAT are determined by the industry in which they operate, and can range from 4% to 14.5%, although, in April 2017, the Government introduced the concept of a ‘limited cost trader’.
This is defined as a company which spends either less than 2% of annual turnover or less than £1,000 per year on goods. The significance is that limited cost traders pay VAT at the higher flat rate of 16.5%.
Our contractor accountants find that many limited companies fall into this bracket, and some wind up losing money in the FRS compared with paying standard VAT.
VAT Flat Rate Scheme – things to consider before joining
Your limited company may or may not benefit from registering for the VAT FRS. To help you determine the best option for you, here are some questions to ask yourself:
• In which industry do you operate and what would your flat rate percentage be?
• Do you spend a sufficient amount on business purchases to avoid the ‘limited cost trader’ tag?
• How much do you value simplicity?
For further information about the scheme, see our online guide . Alternatively, our specialist contractor accountants are on hand to help. We can assess your situation, draft up some calculations and help you determine whether you would benefit from the FRS.