Q. What VAT should I pay as an Oil and Gas engineering consultant?
A. UK established persons who are in business and make or intend to make taxable supplies are liable to be registered for VAT at the end of any month if the taxable supplies of all business activities in the year ended on the last day of that month exceed £83K (registration threshold from 01.04.16). VAT then has to be charged on all fees/sales at the current rate of 20%. There are special rules for services/supplies made outside the UK.
Where turnover does not exceed £150K then a business can join the Flat Rate Scheme (FRS) whereby the VAT it pays over to HMRC is calculated as a percentage of the VAT inclusive turnover. VAT still has to be charged to the customer at the rate of 20% however & VAT incurred on expenses cannot be reclaimed, with the exception of capital assets over £2K.
The amount of VAT that a business pays over to HMRC varies according to the business category it falls under. There are 51 categories that can be found by visiting www.gov.uk/vat-flat-rate-scheme/how-much-you-pay. The problem is that not all trades/professions are covered, in particular consultants. In these cases, consultants have, quite understandably, selected the sweep up category of ‘business services not listed elsewhere’, which carries a 12% rate. HMRC however take a different view based on a statement in its published guidance, VAT Notice 733, para 4.4, “If you act as a consultant and you do not fit into another specific sector, you should choose management consultancy. This sector is not restricted to businesses that fit the traditional idea of management consultancy.” Unsurprisingly, management consultancy carries a rate of 14%.
Before joining the FRS, you should discuss this with your accountant to establish if it is right for you.