Flat rate VAT - worth it?

paddyrg wrote: »

I just want to clarify something about the VAT flat rate scene if I could, any comments welcome.

Currently for a £100, I charge £100+20% for UK sales (it's all b2b, all clients also registered). I give HMRC the £20, and do all the regular quarterly submissions etc. So far so normal. I thought about the flat rate scheme, let's assume my percentage would be 14% for now - I take it that's 14% of the £120, so I would give HMRC £16.80, and the balancing £3.20 would supposedly approximately cover my VAT on purchases.

I think I'm right so far?

So, the questions -
How would it work with expensing? I might have to rebill a couple of grands worth of hotels (on which I paid VAT), and something similar for travel (no VAT on trains).
I occasionally will do jobs far overseas (middle east, for instance), which may be a significant slice of my annual income. The client may be in Lebanon, for instance, and so i do not charge them VAT. Am I right that I'd still need to hand over 14% of that under the flat rate scheme, and actually be dramatically worse off? Or do I just hand over 14% of UK, VATted transactions.
How about on European transactions where I take the VAT number of the client, and fill in the European Sales Declaration List? Would I suffer 14% of that contract, despite never actually receiving the VAT to begin with?

I did try asking an accountant, but they didn't seem confident in their mumblings, so thought here might be clearer! I would hate to try to simplify my VAT slightly, and in the process make myself significantly poorer!

Thank you all

The questions you ask are somewhat specialised and I would urge you to consult an accountant to ensure you get the correct response (or at least one you can sue if it's wrong!)

If your accountant was unsure, or started mumbling, get a new accountant who is confident in handling your affairs.

Or you could try the VAT helpline.

Essentially you have the first part of your post right - that was the easy, general bit.
But as no one has attempted to answer, here are my musings over the questions you raise.

1. It's ultimately your choice if you wish to adopt the flat rate scheme, and if it doesn't look like it will work for you, then don't.

Essentially hotel biils would normally be handled as follows under the traditional scheme.

a) You would pay the hotel bill in full (inc VAT) - say £2400
b) You would recover the VAT on the hotel as Input Tax (£400)
c) Assuming no mark-up for simplification, you would bill the customer for the hotel (£2000) and add your VAT (£400) which will be your Output Tax.

So in simple terms, you've paid out £2400, got £400 back off the VAT man, and got £2400 back off your customer. You need to hand £400 to the VAT man.
(In reality, you will probably handle this within your VAT Account)

Under the flat rate scheme, as you say, the 6% difference (20% VAT rate - 14% flate rate scheme rate for you) should cover the VAT on purchases (Input tax)

If it doesn't on the grand scale of things, either don't opt for the flat rate scheme, or see if you can pursuade the VAT man to give you a different/lower flat rate scheme based on your unique trading style so that you don't lose money. (Not sure the VAT man will entertain such a request, but if you don't ask...)


2. Products or services that are exempt from VAT (or outside the scheme), but not zero rated goods/services, should not be included in your VAT return. i.e. it's not part of your VATable turnover, so no VAT is due on this under the flat rate scheme.


Just my thoughts. May be right, maybe wrong, but may give you something to ponder. As I said, seek expert advice.