Flat rate VAT

[stringman]

Hi all

 

I once investigated a Flat rate VAT scheme that the HMRC were doing. From what I can remember it was something along the lines of :

you register for VAT and obviously charge VAT on all your sales etc

you dont claim VAT back on anything you buy but pay a flat rate of VAT ( I think it was 11%) on all your income.

 

I worked it out that I could make an extra £300-£500 by doing this ( which didnt seem worth the effort)

but now the the VAT has gone up to 20% and my VAT related spending is almost zero I wondered if it was doing again?

I dont have to go VAT registered as I am below the threshold

 

does anyone on here use this method? if so how do you find it?

 

thanks

[Brian]

... but pay a flat rate of VAT ( I think it was 11%) on all your income.

There are a number of different flat rate schemes each with a different percentage.

 

You'd need to talk to HMRC to see which one they will allow you to be in.

 

And remember that if you VAT register your price to your customers will go up by 20%. Will they pay the extra?

[paulears]

I registered when I was still below the threshold and it certainly paid off for me to just use the normal scheme, not the flat rate - simply because not everything I buy gets sold on. Lots I use myself or have in stock to hire out. Very few of my customers in the usual sense are not VAT registered, so it has no impact there - and sales via my website and via ebay don't seem to suffer when I rounded up to cover the VAT increase.

 

If I was competing with other people doing the same thing and they were not registered, then it would be tricky - but I don't do that. The flat rate schemes work for people who are 100% seller - such as market traders etc, but where you have hire stock, or are repairing items it makes sense to be able to get back the input tax early, not wait until you sell on, or hire enough times?

 

As with all advice of this kind, you need to talk to your accountant because everyone's circumstances are different, and there could be issues you haven't thought about - like vehicle costs for fuel/maintenance/depreciation.

[stringman]

Thanks for that

I only offer freelance services so dont buy in kit etc

all of my clients are AV companies are VAT registered so it should have no impact on them

[whiteair]

A small point to keep in mind is that input VAT can be recovered on capital items over £2k VAT inclusive under the flate rate scheme. This can be appealing if you are considering investing in any large items in the near future, however renting of those items is prohibited.

 

"If capital assets are purchased with a VAT inclusive value of £2,000 or more, the VAT can be recovered in the normal way. This concession, however, cannot be used where the assets were:

 

* acquired for resale, or for incorporation in goods to be sold,

* acquired to be hired out, leased or let,

* for consumption within one year, or

* covered by the capital goods scheme."

 

Source:HMRC

 

Also, don't be fooled into thinking that the 11% for flat rate you were quoted back in the day is likely to be the same now that the 20% standard rate has come into force. The flat rates change when the standard rate changes. This may well have abeated any extra money you plan to make down to £0.

 

As always, speak to your accountant who will give you the most appropriate advice for your circumstance.

[Brian]

Hang on. So you don't buy in anything? Where does you 'extra money' come from then?

[stringman]

Hang on. So you don't buy in anything? Where does you 'extra money' come from then?

 

not quite sure what you mean by "extra money"

 

thanks to whiteair I did a search for my band. by typing in tech I got business services not listed which gave me a rate of 12.5%

theres a nifty little calculator thing

so basing it on £36,000 (well I can hope) it tells me I would need to pay £4300 tax (approx) yet I would invoice £43,200 which would mean I gain about £2900

 

this could be worth looking into

[Simon Lewis]

From HMRC -

 

"Using the Flat Rate Scheme you pay VAT as a fixed percentage of your VAT inclusive turnover". (my bold)

 

Basing it on an ex VAT turnover of £36,000 you would invoice £43,200 and pay 12.5% of that in tax (£5400). You've charged your customers an extra £7,200 and you would be £1800 better off.

[stringman]

From HMRC -

 

"Using the Flat Rate Scheme you pay VAT as a fixed percentage of your VAT inclusive turnover". (my bold)

 

Basing it on an ex VAT turnover of £36,000 you would invoice £43,200 and pay 12.5% of that in tax (£5400). You've charged your customers an extra £7,200 and you would be £1800 better off.

 

 

DOH!!!!

still not too bad