Supporting the IT crowd
The Tech Nation Report 2021 from TechUK, which looked at the state of play for the UK’s tech sector, showed another year of strong growth, even in these challenging times. In fact, it raised the third highest amount of venture capital investment in the world (behind only the US and China).
The IT sector in the UK employees a huge amount of people, so it’s no surprising that, here at Lewis & Co, we provide our accountancy services to a number of businesses and individuals in this sector. According to the statistics firm, Statista, in 2020, around 860,000 people were employed in jobs in the IT, software and computer services sub-sector of the UK’s creative industries. Of these, approximately 144,000 people were self-employed.
A number of the people we look after are self-employed IT contractors, who support a variety of clients or are taken on to work on different projects. Our services can include dealing their VAT requirements.
If an IT contractor is VAT registered, we often suggest that they might benefit from the Flat Rate Scheme, which will see you pay a fixed rate of VAT to HMRC. Introduced in 2002, the Flat Rate Scheme is a way of providing smaller businesses, such as those involved in IT, with a simpler way of calculating their VAT liabilities.
To join this scheme, your VAT turnover must be £150,000 or less. The flat rate you use usually depends on your business type and you get a 1% discount if you’re in your first year as a VAT registered business. This is something we can advise you on at Lewis & Co.
Under the standard VAT scheme, you calculate how much VAT you have charged on invoices during each quarter, then subtract any VAT you have paid on any services or products you have purchased via the company during the same period. The difference is then payable to HMRC.
Under the Flat Rate Scheme, you apply a fixed-rate percentage (of 14.5% for IT contractors) to your turnover, and pay this amount to HMRC each quarter, rather than working out your precise tax liability. The scheme was designed to make VAT accounting simpler for smaller firms, particularly for those, such as IT contractors, who have few costs and therefore not much in the way of input VAT to reclaim if they were not using the scheme.
If you’ve got any questions or need any help, please call our team on: 01892 513515 or email: info@lewisandco.biz