Changes to Flat Rate VAT for Contractors and Freelancers

Not only did the 2016 Autumn Statement rock the Estate Agent industry, it also announced changes to the flat rate VAT scheme which will affect some contractors and freelancers.

Flat Rate VAT Scheme

The Chancellor has concluded that the flat rate scheme is providing too much of an advantage to contractors and sole traders whose business is substantially labour based and has therefore announced a minimum rate to be applied to these businesses, who may currently have an agreed rate of 12% or 14.5%, of 16.5%.

For a business operating under the scheme with gross revenue of £100k per annum on 12% agreed rate will see their VAT bill increase by £4,500 per annum.

This move negates substantially all of the financial benefit of the Flat Rate Scheme for these businesses, albeit the administrative burden is still less than operating the standard VAT scheme.

Tax and the "one man bands"

This recent announcement follows the reduction of tax free dividends from £30,000 to just £5,000, leaving some questioning the Conservative Governments true stance on supporting entrepreneurship.

By cracking down on tax advantages less of Britains talent will be inclined to make the move to self-employment. While this may boost income tax paid it may also be to the detriment of some industries.

Accounting for contractors and freelancers

If you don't understand your VAT treatment or would like to know more about the Flat Rate Scheme and/or these changes then talk to us.