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Are IT contractors better off using the Flat Rate VAT scheme?
Posted Aug 16, 2010
This question was answered by specialist contractor accountants, Freestyle Accounting.
This depends on the individual circumstances of the contractor and the manner in which they carry on their business.
If the contractor incurs a large amount of expenses then they may be better off on standard VAT where they can recoup the entire input VAT they incur.
In addition, if the contractor operates as a sole trader and has another business or a buy to let portfolio, then registering for the flat rate scheme as a contractor would result in them having to include the income from that other business in their VAT calculations, resulting in additional VAT being due.
However, in our experience, the typical contractor, trading through a limited company and with a small amount of expenses will generally be better off electing for the flat rate scheme, especially as expenses such as travel, postage and some subsistence do not include VAT.
We would however urge any contractor to take professional advice before registering as there are pitfalls which they may be unaware of.
Further information
You can read more in our guides to the Flat rate VAT scheme, and the standard VAT scheme.
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