VAT Flat Rate Scheme for Consultants


The VAT Flat Rate Scheme (FRS) is a simplified method whereby VAT Registered Traders with a turnover of less than £150,000 can use a pre-agreed flat rate % of sales to calculate VAT liabilities rather than using the traditional “Outputs minus Inputs” method for calculating the VAT due to HMRC.

This has the significant advantage for smaller traders as it significantly simplifies the calculations required at the end of each VAT period, however many traders have also found that the standard rates that HMRC are happy to accept are actually less than the calculated amount of VAT that would otherwise have been paid over. In these cases it is literally a win/win position for the VAT registered trader.

However there have equally been many cases where traders have paid over more VAT that would otherwise have been due, and recent Tribunal Cases have supported the fact that the original guidance was ambiguous.

HMRC has recently responded with a rewrite of VAT Notice 733: Flat rate scheme for small businesses. This notice now reflects comments made by judges in tax tribunal cases that businesses should ‘use ordinary English’ in choosing the flat rate trade category.

For example, HMRC previously insisted that consultants should chose the category ‘management consultants’ (flat rate: 14%), even if they were consultants in health and safety, employment, or marketing. Now those businesses who do not describe themselves as management consultants are free to choose the category ‘business services not listed elsewhere’ (flat rate:12%).

This brings welcome relief to many consultants who will now find themselves free to select the lower 12% FRS calculation, so for a consultant earning £100,000 there is a cash saving of 2% (£2,000) per annum.

It is important to note that there are potential disadvantages to using a VAT FRS and careful consideration needs to be taken on a case by case basis. For help with VAT compliance, bookkeeping or any aspects of accountancy contact your local Burgis & Bullock office on 0845 177 5500 or use our on-line form.

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