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Flat Rate Scheme Explained - What Contractors & Freelancers Need To Know

The Flat Rate Scheme (FRS) was introduced by HMRC to help simplify VAT accounting for SME’s and it can be particularly advantageous to contractors. 

You can join the Flat Rate Scheme if your sales are less than £150,000 in year 1 (a day rate of around £620 per day).

The Flat Rate Scheme works by applying a Flat Rate Percentage to your gross sales. These percentages differ depending on what trade your company undertakes however the most common ones we see are currently:

  • IT Consultancy 14.5%
  • Management Consultancy 14%
  • Business Services 12%

Each quarter, we total the sales you have made in the previous 3 months and multiply this by the relevant Flat Rate Percentage. This amount is reported on a VAT Return and the amount paid over to HMRC. 

Any difference between the VAT added onto sales and the amount paid over is retained in the company as profit – which means more is available funds to be paid to you as dividends! 

Example:

Flat_Rate_Scheme_Example.png
Free Resources
Gorilla Guides
- Company Formation
- Limited or Umbrella?
- Contractors & Freelancers - What will I earn?
- Gorilla Accounting Guide to Expenses
- What is IR35?
- VAT
- Flat Rate Scheme Explained
- 24 Month Rule Explained
- Guide for New Employers
- What is an Umbrella Company?
- Getting Started as a Contractor
Take Home Pay Calculator
Relevant Life Insurance for Contractors
IR35 and Public Sector in 2017
Autumn Budget 2017
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