[Closed] Flat rate VAT scheme...

it - just - works for me but only - really - one client and he's VAT registered so its neutral for him, check what flat rate VAT you'd be on (and get a 1% bonus for first year).

Bit of extra hassle at the start, I went from sole trader not VAT registered. Large capital items you can reclaim VAT but run of the mill stuff (< £2k IIRC) aren't claimable.

slightly quids in, not sure if I'd run the hassle again TBH. and extra 'profit' for the difference is then offset by taxed on that profit.

I'm on the flat rate scheme - it works fine as I don't really have much complexity.

By 'pay/don't pay' VAT do you mean they some are VAT registered some are not? All should be paying VAT, it's just some can charge it, and of those that charge it those not on a flat rate scheme can claim it back.

On the flat rate scheme you can't claim back VAT incurred (with a few exceptions such as one off capital purchase over £2k etc), so if you deal in a lot of raw or don't do pass through expenses, you could be missing out.

You are allocated a VAT amount depending on your industry - you then pay this percentage of your sales as VAT. Thats it.

So if you are on a flat rate scheme you couldn't claim back VAT on any of your contractors whether they charged it or not.

If you go on the standard voluntary VAT scheme, then you can do the gives and gets. And you have to pay attention to each of the amounts you are incurring and charging.

Decide if you are going VAT registered first - based on forecasted sales, and then decide if you want to flatmate. It makes sense for Service folk with low raw costs, but I don't know your line of business.

Assume you are going VAT registered and the question is flat or standard VAT scheme as you will charge VAT to all clients.
Flat rate scheme is just a simpler way of calculating the VAT liability i.e. 14% of your gross turnover. If you are on the correct rate it shouldn't benefit or cost you any more. The difference between the VAT you charge you clients and what you pay over on the flat rate scheme is added to your profit loss increasing or decreasing the profits so in a profitable business you will pay the same amount in taxes but it may be more VAT and less income or corporation tax.
You can't claim the VAT on your expenses unless it is capital expenditure on £2000 or more.

The capital expenditure can be cumulative so if you purchased 4x laptops at £500 each it would still qualify as if you'd bought one at £2,000.

Thanks guys.. IT sector so 13.5% for the first year.

By pay / don't pay yes I meant some of my clients aren't VAT registered.

I don't really have any costs other than costs of hardware services around £500 a month and contractors (£1200-2000) a month... I know for a fact the contractors aren't VAT registered and I know the hardware services are invoicing from out of the USA anyway so probably can't claim anything off them?

I just went to see an accountant and he didn't mention it... I don't have to go VAT registered I just thought it maybe be another way to have a few more reddies at the end of the year... sounds like the perks aren't really that major so maybe I'll concentrate on being a LTD company for a year first then look into it next year

How are you keeping your accounts? I'm now using Quick Books online (was Quicken before) which pulls all your bank transactions in automatically and normal VAT is pretty easy to run - just tell your software to run a VAT report.

It's worked well for us - financially and logistically.

Easier to calculate, I do my own VAT returns but the accountant does everything else.

[i]Thanks guys.. IT sector so 13.5% for the first year.[/i]

Don't just 'assume' that this is your rate, look at your actual business and see if you are able to justify a lower rate.

The sectors vary too, as we're on 14% (for 2nd/subsequent years) which was the Business Consultancy rate when we signed up - just looked and it's now gone...

https://www.gov.uk/vat-flat-rate-scheme/how-much-you-pay

What is your 'core' business?

Good point BR... We are web developer / designers... so I figured IT was the best fit... however "Business services not listed elsewhere" has a better rate...

And yes I'm using Kashflow at the moment but the new accountant said it'd be just as good in a google doc as my business is quite simple

Yep - I went for the Flat Rate VAT scheme. I'm an event organiser, under the 'normal' VAT scheme, on the income side I would have had to just add 20% to my entry fees once I registered - pretty much all income was VAT-able, and none of my customers would be able to claim it back - it wasn't a neutral arrangement. I didn't really want to shunt my prices up by 20%.

On the expenditure side, many of my suppliers were small companies/individuals and not VAT-registered. So, I would have paid a lot more VAT (from income) to HMRC than I could have reclaimed (through expenditure).

I reckoned that flat rate made sense as I'd have been taking a hit and making a net payment to HMRC (8.5% in my case) anyway. It made my life much easier to have this as a simple transaction based on easily calculated income figures than by d1cking around working everything out under the 20% normal scheme.

Yep - I went for the Flat Rate VAT scheme. I'm an event organiser, under the 'normal' VAT scheme, on the income side I would have had to just add 20% to my entry fees once I registered - pretty much all income was VAT-able, and none of my customers would be able to claim it back - it wasn't a neutral arrangement. I didn't really want to shunt my prices up by 20%.

I may be misunderstanding your post, but just because you pay 8.5% of your gross turnover to HMRC as VAt under the flat rate VAT scheme, doesnt mean you dont charge your customers 20% vat.

or do you mean that you effectively lowered your pre VAT prices so that the overall increase to the end customer was not 20%? ie you passed on some of the savings you make by being in the flat rate scheme?

You still charge 20% VAT as per normal VAt rules, the flat rate scheme just mean you pay a flat rate of x% on the VAT inclusive turnover.

Think he's saying the rate due being much lower he can afford to keep the same price or slightly higher rather than charge 20% extra. Still charges 20% VAT but obviously not paying that much to HMRC.

The risk in absorbing the VAT in the price is how much expenses you have. That's the point of the flat rate as it estimates how much typical VAT chargable expenses your job sector has and discounts the return by that. In theory most people are not far off and thus don't really benefit, but if you do you could avoid upping the price.

In my case according to my accountants I seem to benefit by an average of £500 a quarter.

[i]In my case according to my accountants I seem to benefit by an average of £500 a quarter.[/i]

4% of gross for us.

But for me the key benefit is not having to account for VAT (except on invoices), especially not having to know the EXACT way that I should treat every item of expenditure/expenses.

As my accountant <edit> tried to </edit> explain it to me...

My client is VAT registered, standard rate. I'm VAT registered on flat rate, IT Consultancy (13.5% for the first year).

Let's say I invoice the client for £1000 + VAT
Client pays me the invoiced amount plus 20% - £1200; I pay HMRC the VAT at 13.5% of the invoiced amount - £135. The rest of the VAT that the client has paid (£65) goes into my profits, on which of course I pay 20% Corporation Tax (£13) so I get to keep £22 out of every £200 VAT that the client pays me to pass on to HMRC

Every quarter my accountant then tells me how much I need to pay to HMRC for the VAT

On £1000 + vat invoice you should be paying over £162 (1200 x 13.5%). £38 goes to your P&L where you will eventually pay Corp Tax at 20% or £7.20.

Flat rate is calculated on gross turnover not net.

Ah I get it now. Not that I have to work out the exact figures myself, I just trust the accountants... (I know, here be dragons..)

You can't claim the VAT on your expenses unless it is capital expenditure on £2000 or more.

That £2K includes Vat.

Been on flat rate since it startes.

Works very well for us as it's easy to calculate (though the online entry is not really adjusted for flat rate).

We just had a compliance check from HMRC and it was very stressful - as we'd claimed £17000 over four years (we buy lots of equipment). They got loads of things wrong in the check causing minor havoc - result they owed us money.

You select your own category which can be asourcw of contention. Best to play it safe and be accurate.