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VAT planning for contractors: quick-wins and where to beware

Contractor UK

Calls for higher VAT registration threshold (£85,000) are common, especially from self-employed community. Many small businesses avoid VAT registration as their customers aren’t VAT-registered. Limited company contractors, however, don’t face this issue as their clients are VAT-registered. The VAT Flat Rate Scheme (FRS) lost appeal for IT contractors due to “low cost trader” criteria introduced in 2017. Contractors can opt for standard VAT treatment or VAT Annual Accounting (AA) scheme for simplicity. HMRC’s ‘Disaggregation’ framework prevents businesses from artificially separating to avoid VAT. Contractors attempting to create a second non-VAT registered business could face penalties if found to be the same business.

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