The flat rate scheme works as follows for Computer and IT consultancy or data processing which has a FRS percentage of 14.5%. Other Common FRS percentages are:
- Business Services Not listed Elsewhere 12%
- Management consultancy 14%
- Lawyer or legal services 14.5%
You bill your clients as normal adding 20% vat to your services
e.g. £3000+VAT (£600) =£3,600
VAT on expenses
You can’t claim VAT back on your expenses unless an item costs more than £2,000
VAT to pay to HMRC
Based on the above example, you pay over to HMRC 14.5% of £3,600 i.e. £522. You keep £78 (£600-£522) to help cover any VAT on expenses.
In the first year of VAT registration, you pay 1% less than the standard rate, so 13.5 % in above example.
When it makes sense to join the FRS scheme
If the VAT on your expenses is less than the VAT you get to keep, then it is worthwhile registering for the scheme.