The deadline for online VAT returns is drawing close. As from April 1st this year, it becomes mandatory to file online.

For many contractors, the Flat Rate VAT (FRV) Scheme provides a simple and often lucrative alternative to accounting for VAT using standard VAT accounting principles.

With the PBR set for 9 December, it will be interesting to see what changes the Chancellor makes to help struggling contractors, operating either via their own limited company or through umbrella companies.

It is a legal requirement that if you are trading as a business you have to register for VAT as soon as your turnover exceeds £68,000 (from 2009 – the threshold is periodically reviewed). This is based on turnover in any given trading year, not your profit; as soon as you have raised invoices in excess of the threshold you must register.

In 2002, HMRC introduced the Flat Rate Scheme (FRS) for small businesses. Its primary aim is to greatly simplify the calculation of VAT by removing the need to account for VAT on all the items that pass through your business and so improve both accuracy and compliance.

Value Added Tax is a tax levied on the supply of goods and services. It is applied at each stage of the supply chain. There are several rates, which are set annually in the budget, ranging from the main headline rate (15% at the time of writing but returning to 17.5% in January 2010) down to zero. Some goods, such as food and children’s clothing, are exempt.

Having made the decision to work through your own limited Company, there are a few steps to take to set it up. Always remember the Company is a separate legal entity and never mix its affairs up with your own.