What exactly is VAT?

isplumm

cottager wrote: »

For example my brother is a freelance proofreader working from home: an entirely fee-based little business, well under the threshold. The only things he could reclaim VAT for are things like stationery and a few other odds and ends; so he'd have to charge VAT on all his fees with virtually nothing to offset against it. No advantage for him in registering. It means he has to stand the VAT on the few supplies he needs to buy, and this might involve more than usual occasionally if he has to replace his computer or printer, upgrade software etc, but these are not regular outgoings so overall it's not worth the hassle which registering and having to account for VAT would entail.

.

Hi,

Would it not be a good idea for your brother to go on the flat rate scheme ... he then charges VAT at the normal rate, but pays it back every quarter at a set rate (for me it is 12.5%), he also does not have to keep records of VAT paid out (as he can not claim anything back - unless over £2000). If like me he is sales oriented, then this would appear to be a good scheme for him.

I work in IT contracting & am VAT registered, so charge my clients 17.5%, but then pay the VAT people 12.5% every quarter .... I don't keep receipts for VAT purposes & the form takes about 10 minutes to fill in. For someone like your brother who is fee based (same as me) & buys in very little, this is ideal- of course it does depend on whether most of his customers are VAT registered as well ....

Mark

cottager

Hi Mark, thanks for taking the trouble to post

I'm familiar with the flat-rate scheme as my ex-boss was on it, and I did his VAT so know how much more simple (and cheaper) it is. His was a consultancy so again all fee-based with relatively little to reclaim. Our business (OH's I mean) is very different: parts and materials coming in and being recharged out along with labour, then overheads, expenses etc. We're on the standard scheme, so I've worked with both.

If my brother was obliged to be VAT-registered (which he isn't, or anywhere close) I certainly agree with you, flat rate would be the way to go. If his band/category was similar to yours at 12.5%, then it's more reasonable and does without the need for such detailed records... but sorry (quite probably a DUH! needed here on my part!), am I missing something really obvious? It would still be 12.5% he isn't having to pay at all now, or 'manage' or charge his clients. What would be the benefit to him of registering and paying, say, 12.5% against staying as he is and not having to deal with VAT at all?

isplumm

cottager wrote: »

Hi Mark, thanks for taking the trouble to post

I'm familiar with the flat-rate scheme as my ex-boss was on it, and I did his VAT so know how much more simple (and cheaper) it is. His was a consultancy so again all fee-based with relatively little to reclaim. Our business (OH's I mean) is very different: parts and materials coming in and being recharged out along with labour, then overheads, expenses etc. We're on the standard scheme, so I've worked with both.

If my brother was obliged to be VAT-registered (which he isn't, or anywhere close) I certainly agree with you, flat rate would be the way to go. If his band/category was similar to yours at 12.5%, then it's more reasonable and does without the need for such detailed records... but sorry (quite probably a DUH! needed here on my part!), am I missing something really obvious? It would still be 12.5% he isn't having to pay at all now, or 'manage' or charge his clients. What would be the benefit to him of registering and paying, say, 12.5% against staying as he is and not having to deal with VAT at all?

Because he charges 17.5% & pays 12.5% .... although not 5% profit ... but does make a profit ... for me as I am a consultancy & most of my clients are VAT registered, then it is worth it - I also don't have that many expenses ... mainly mileage ... so it works out ok for me ... so if he is a similar position, then it might be worth it ... has he an accountant ... talk to them.

Mark

cottager

Ahhhhh right, yes I see now! Call it a senior moment...
In that case I'll mention it... would never have occurred to me (and didn't, even when I was dealing with it for my old boss!).
Cheers Mark

isplumm

cottager wrote: »

Ahhhhh right, yes I see now! Call it a senior moment...
In that case I'll mention it... would never have occurred to me (and didn't, even when I was dealing with it for my old boss!).
Cheers Mark

Do remember that this will not be suitable for everyone ... depends on their business ... I would take advice & also depends on his clients at the moment.

The rate you pay VAT will vary - depends on the type of business you run - I am a management consultant ... you also get a 1% discount in the 1st year ...

Mark