The vast majority of freelance contractors in the UK are registered for the VAT Flat Rate Scheme (FRS). This allows them to keep a percentage of the VAT that they have to charge to their clients which gives them an extra income stream without having to do any additional work. On average the extra income ranges between £3,000 to £4,000 per year.
However the cost of using the VAT FRS over the Standard Scheme is that you are not allowed to claim any VAT back on your expenses like you can with the Standard Scheme. This is not normally an issue as the vast majority of expenses that a freelancer contractor will incur do not have any VAT charged that they could claim back.
The one occasion when claiming VAT back would be very useful is when you are buying assets for your business. A laptop for instance costing £1,200 will have £200 of VAT included in the price which a Standard VAT Scheme user could claim back.
If however you plan your asset purchases carefully then a VAT FRS user can also claim back the VAT on them.
When you purchase assets for your business that total £2,000 or more and the purchase is all on one receipt, you can claim back the VAT. So for assets totalling £2,400 you would be able to claim back £400 of VAT.
Plan your asset purchases carefully i.e. buying them all at once from one supplier rather than spreading them out over several months from different suppliers and you could save yourself hundreds of pounds.
With the 123 Way your VAT returns are prepared for you each month and any VAT on asset purchases is reclaimed - you don’t have to do a thing.
For more information on VAT or to discuss your asset purchases, please contact Christopher on firstname.lastname@example.org