Flat Rate Scheme

[Joff]

As part of my research into whether to set up as Limited or be a sole trader (see my other posts for the convoluted story), I took the advice that's on this Forum all the time and went to see an accountant! One question I asked him was about the advantages of registering for VAT voluntarily as I will only be earning £10-15k p/a (it's a sideline to my usual full employment).

He mentioned the Flat Rate Scheme as a potential way forward and said that VAT is charged at 11% (minus 1% for the first year) at a flat rate across all taxable revenue. However, I have a couple of questions which I only though about afterwards and he's on holiday!

1) I will be providing contract review, drafting and negotiation services, so should I fall under the Flat Rate for Legal Services at 13%? Although I am a lawyer (barrister), I don't maintain a practising certificate as I live in Scotland and can't practice here as I'm called at the English Bar. I won't be providing legal advice, although some of the services I will provide could be classed as legal in nature, e.g. setting up joint venture companies, drafting contracts, etc.

2) Whatever Flat Rate I fall under, are these likely to rise when VAT returns to 17.5%?

3) At the moment I am only providing these services for one company - I know the IR35 risk, but I have only just started and am looking for other clients. A company in Australia has now asked me to carry out this work for them too, but I presume VAT isn't taxed on work outside the UK. If so, and dependent on the amount of work performed outside the UK, is the Flat Rate Scheme worth it?

Many thanks!

[dp0848]

Hello Joff,

1) I think that the correct rate for you is likely to be the 9.5% rate (less 1% during the first year), but I've not had the benefit of sitting down and discussing exact details with you. As you are unable to practice as a solicitor or a barrister I think you could easily argue that you are not providing legal services. For example we as accountants review contracts for clients from an IR35 prospective and we do not consider ourselves to be providing legal services.

2) Yes. For example the 10% rate was dropped to 9.5% on the 1st December 2008. It will revert to 10% when the rate returns to 17.5% at the end of this year. The HMRC website provides details of all the flat rates both pre and post reduction.

3) You don't say wether you eventually opted to be a sole trader or to operate via a limited company. IR35 will not apply if you are a sole trader. Instead you'll need to consider your employment status. IR35 issues will need to be considered if you are operating via a limited company. The number of clients you have is not relevant in either case. What is relevant is the nature of the relationship you have with those clients and the terms of the contracts put in place with the clients. Whether or not the work for the Australian client is VATable depends upon the deemed place of supply. Again have a look at the HMRC website for more detail. If the place of supply is considered to be Australia (and you don't physically have to be there for that to be the case) and VAT is not applicable then the Flat Rate Scheme may not work in your favour. This is because you'd need to take the Australian revenue in to consideration when calculating your turnover for the FRS scheme even though you will have collected no work on the Australian work.

Regards.

David.

[Joff]

Many thanks for that advice, David!

1) I think that the correct rate for you is likely to be the 9.5% rate (less 1% during the first year), but I've not had the benefit of sitting down and discussing exact details with you. As you are unable to practice as a solicitor or a barrister I think you could easily argue that you are not providing legal services. For example we as accountants review contracts for clients from an IR35 prospective and we do not consider ourselves to be providing legal services.

Why did you think 9.5% would be applicable? I had a look at the HMRC website (http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageImport_ShowContent&propertyType=document&columns=1&id=HMCE_CL_000345#P169_14547), and that rate seemed to apply to hotels, advertising, scrap dealers and vets! Am I looking at the wrong thing?

I agree that it's arguable that I'm not providing legal services as I don't hold a practising certificate, but my only thought on your example is that there is a category for accountants but I'm not sure where my services would naturally fit.

2) Yes. For example the 10% rate was dropped to 9.5% on the 1st December 2008. It will revert to 10% when the rate returns to 17.5% at the end of this year. The HMRC website provides details of all the flat rates both pre and post reduction.

OK

3) You don't say wether you eventually opted to be a sole trader or to operate via a limited company. IR35 will not apply if you are a sole trader. Instead you'll need to consider your employment status. IR35 issues will need to be considered if you are operating via a limited company. The number of clients you have is not relevant in either case. What is relevant is the nature of the relationship you have with those clients and the terms of the contracts put in place with the clients.

I still haven't 100% decided as I am doing this as a sideline to my full time employment and am already a higher rate taxpayer. However, the limited liability aspect and the fact I'm lucky enough not to actually need the income (one of my other posts has all the details) at the moment is driving me towards the Ltd Co route.

I'm aware of the various things HMRC look for like the T&Cs, actual circumstances, hiring someone else to do the work, etc., and have a feeling I might fall in its remit ... but I'm hoping that as my revenue from this part-time work is only likely to be £10k-£15k p/a that HMRC might have bigger fish to fry!

Whether or not the work for the Australian client is VATable depends upon the deemed place of supply. Again have a look at the HMRC website for more detail. If the place of supply is considered to be Australia (and you don't physically have to be there for that to be the case) and VAT is not applicable then the Flat Rate Scheme may not work in your favour. This is because you'd need to take the Australian revenue in to consideration when calculating your turnover for the FRS scheme even though you will have collected no work on the Australian work.

The potential work is negotiating contracts between the potential Australian client and other companies in Australia or elsewhere. Work would be done from the UK and negotiations by phone/email, but I'm presuming the place of supply would probably be Australia?

[MyAccountantOnline]

Joff - I'll let David reply but I think you link is to old rates - try this

http://www.hmrc.gov.uk/vat/account-flat.htm#6

[Joff]

Thanks for that, Nicola, and apologies David - if only I'd scrolled down the page a bit further!