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> The fixed rate VAT does not let you reclaim VAT, but you pay a lower rate than you charge your clients. So if you're a developer contractor you'll be adding 20% VAT to your client invoices, but only pay 14.5% to HMRC, keeping the remaining 5.5% to the business.

This is not correct. The way the flat rate VAT scheme works is you add VAT to your bill, then pay 14.5% of your "flat rate turnover" to HMRC. Flat rate turnover includes the VAT.

For example, let's say you did £100 worth of work for a client. You invoice them for £100 + 20% VAT = £120 in total. You must then pay 14.5% of £120 to HMRC (i.e. £17.40).




BTW there is a HUGE catch with that fixed rate system. It more or less prevents you from doing any work overseas (for a company that doesn't have a UK office). The reason is that the work you do oversea would have to be invoiced as /zero rate VAT/ -- however you will still be liable to pay back 13.5 (or 14.5 after a year) VAT from what you invoiced. This is cruel, but there is no way around it. The bottom line is that HRMC considers that you need to pay 13.5 for any VAT rate you charge, and 'zero rated' actually means you are 'charging' zero, but you are still technically charging! I can tell you it was a pretty massive headbanger for me earlier this year, and luckily the company I worked for had an obscure UK office that allowed me to re-invoice everything with the 'proper' 20% VAT

So if you plan to sell work to an oversea company in the future, make sure to get off the simplified VAT scheme beforehand. I know I will, come november, the shackles aren't really worth the tiny little money you get in the end.


Strange. In France you don't have to contribute VAT for the services you invoiced abroad (well, outside the EU. Inside the EU is another matter). You don't receive it, you don't pay it.

It seems absurd to make a company pay back a VAT amount that it has not perceived.


I know, but I really went over with a comb on the HRMC website, asked them, asked all around and everyone agreed. These transactions are 'zero rated' -- therefore, you need to pay 1[34].5% VAT back... Stupid, but the rule is clear.

Incredibly bizarre that as a small company, you try to 'export' and thus bring cash back into the economy, and are in fact actively prevented from doing so when on that scheme.


It also doesn't mention that you don't need to register for VAT until you have a turnover of £82k.


But for coders it's almost always worth registering straight away and going for the FRS.

Also, on FRS you can claim a single £2k expense annually.


Within the EU. For example if you have a turnover of £100k all from outside of the EU you don't need to register.


You don't have to,but you might want to - if you want to do any business with EU companies you have to give them your VAT number to be properly paid and invoiced. My company doesn't make anywhere near 82k,but it has to be VAT-registered for this very reason.


Oops, it's good I didn't trust myself and got Crunch to do that for me :) Thanks a lot, I'll update the guide when I get a chance.


Also in your first year you receive an extra 1% - if you would normally pay 14.5%, in the first year you would only pay 13.5% back.




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