January 14, 2011
Whilst many workers and businesses are likely to be worse off as a result of the increase in the VAT rate to 20%, certain professionals may actually be able to benefit from the change. Freelance workers and consultants can register on the ‘flat-rate’ scheme with HMRC, potentially saving them several thousand pounds a year if they have an annual turnover of below £150,000. Those registered on the flat-rate scheme are required to pay VAT to HMRC at a specific flat rate depending on their profession, which constitutes a percentage of their gross turnover and which may be lower than the 20% rate that they must charge their customers. Therefore they can benefit by keeping the difference in VAT received. Those registered can also benefit from a 1% reduction in the flat rate during their first year of registration. Once registered, it is possible to stay in the scheme until achieving a turnover of greater than £225,000. However, those on the flat-rate scheme can only recover VAT on capital purchases of over £2,000 or stock and assets already owned at the date that they register for the scheme. Anyone meeting the requirements for the flat-rate scheme should seek legal and/or accountancy advice to find out if the scheme would be of benefit to them.