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Reduced VAT for Contractors

 I have been approached by an IT contractor who told me that his colleagues say that with a limited company under IR35 he can reduce the amount of VAT he has to pay over to HMRC by 2%. Does anyone know what he is talking about?

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Flat rate scheme?

He must still charge VAT at the standard rate of [edit] 20% on his sales invoices, but if he applies to join the Flat Rate Scheme, he would have to pay over VAT at only 14.5%, the flat rate for an IT consultant, of the gross value (including VAT at [edit] 20%) of his sales, but could not reclaim any input VAT on his expenses.  There is a 1% discount for the first year from the date of VAT registration, so 13.5% of gross sales, rather than 14.5%.

This applies whether or not he trades through a limited company and whether or not a company would be subject to IR35.

[Edit]  Thank you, Neil.  I must be living in the past!

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That must be it

 Thanks Euan, for that very prompt and useful reply. Much appreciated.

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Oops!

Right principles Euan, wrong VAT rate!

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