ESM3590 | Managed Service Companies (MSC): VAT

An MSC only has to register for VAT if the value of its taxable supplies is over a specific limit, unless the supplies are wholly or mainly zero rated, in which case an application for exemption from registration can be made. From 1 April 2017 the new VAT registration threshold is £85,000..

A Company may voluntarily register for VAT even if the value of its taxable supplies is below the specific limit; however that is a choice for the company.

HMRC operate a Flat Rate Scheme which simplifies VAT accounting by applying a flat rate to VAT-inclusive turnover. The scheme is available to businesses whose annual taxable turnover (not including VAT) does not exceed £150,000. However, any MSC wishing to use the scheme must demonstrate that it is not associated with another business before its application can be accepted.

The flat rates are calculated as an average of the net VAT paid by a particular trade sector. As MSCs do not adhere to a normal sector profile, HMRC may refuse use of the scheme in order to protect the Exchequer.