Which flat rate should I use and will it benefirt me to register before exceeding £85k threshold

Forum Categories VAT REGISTRATION Which flat rate should I use and will it benefirt me to register before exceeding £85k threshold

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    I’m a Sole trader , doing freelance project management/engineering consultancy – should I opt for “other” 12% rate category ?

    Also as my business is just time & recoverable expenses, would I benefit from registering before I have to – if I understand correctly I would just be adding 20% VAT to both time and expenses Invoice , but then would only have to repay the VAT at 12% ?




    Simon, you are technically right, you will be adding 20% to your invoices but you pay 12% to HRMC (and you dont claim input VAT on your expenses you incur). Normally a VAT registered business charges 20% on its sales (which is paid to HMRC) and is charged 20% on its purchases and expenses( which it claims from HMRC) – the net amount is claimed or paid to HMRC.

    The Flat Rate VAT Scheme is a simplified scheme for businesses with an annual turnover of under £150,000 (excluding VAT), whereby a business pays a fixed percentage of its annual turnover. It enables businesses to keep the difference between the amount paid to HMRC and the amount of VAT charged to customers – it can save you money or cost you money depending on the expenses you incur – in your case since you don’t have any purchases, it is likely to save you money.

    Information regarding the trade sectors and flat rate percentages can be found in Vhttps://www.gov.uk/vat-flat-rate-scheme/how-much-you-pay You would use these rates if you’re not a limited cost business (also see link above). If you’re a limited cost business you need to use 16.5%. 

    Due to the abuse of the flat rate scheme, HRMC now classifies a business that spends a small amount on goods as a ‘limited cost business’ or ‘limited cost trader’ are must pay a higher flat rate of 16.5%.

    Given you don’t have many purchases, it likely that you are a limited cost trader and hence 16.5% will apply instead.


    Thanks for the response.
    When I registered online I was automatically allocated a “not listed general engineering flat rate of 14.5%” – since my expenses historically exceed the limited cost trader threshold I assume this will be OK & if I understand correctly I can also claim a 1% first year discount , hence will repay VAT at 13.5% for first year.


    Follow up clarification – when I re-claim expenses from my clients – do I just add 20% VAT to the total of my expense claim irrespective of if the expense already included VAT or do I have to deduct the VAT paid on the expense first and then apply 20% to the total claim?

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