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VAT Flat Rate Scheme

Q. I’m an IT contractor with my own Limited company on registered on the VAT flat rate scheme. My Wife, a 50% shareholder and Director wants to leave her slaried employment and start earning money in a different sector (In her case Equestrian training and Art and craft commissions). Is there a simple mechanism to do this through our main company as a seperate enterprise? or have we set our company sector in stone by applying to the flat rate scheme? We want to avoid, if possible having to run two books of business and having to do two sets of company returns every year!

A. You must firstly consider whether or not there are two separate trades operating which require them to be operated separately. In terms of companies, activities are only likely to amount to more than one trade if:

  • one activity is so different in nature from the other that it can be seen as quite separate; and
  • the activities are separately organised and managed right up to Board level.

Provided the above does not apply & the memorandum & articles of association of the company permit the two activities to be conducted through the company, the relevant percentage that is applied under the Flat Rate Scheme is that which relates to the major part of the business, ie which income stream produces the greater turnover. So for example, if the company’s greater part of the turnover is from computer & IT consultancy, which carries a rate of 14.5% then that is the percentage to be applied to all supplies.

You should consider however if it is beneficial to subject the non-IT supplies to the Flat Rate Scheme regime.

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By Contractor Doctor

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