Am I better of flat rate vat?

Prosperous1

Hi.
I run a business supplying a product to the customer which is 90 percent general public.
I'm not at the vat threshold yet but probably will be in my next year's trading as the business is growing rapidly, I've just gone from sole trader to self employed.
I'm having a mental block on whether I should go vat reg and if I do flat rate or standard return.
I'll give an example of my most typical sale.
Cost to me 16.95 plus vat. Price to customer 34.99.
Now regardless of whether vat reg or not this price cant/won't change as competitors sell for similar.

I am trying to work out if it's better just to charge the 20 percent and claim back the vat on the 16.95 or go flat rate.

Also I buy machinery every couple of years normally 2-3k plus vat BUT this is for the totap invoice of 2 items not over 2k per item. Would I still be able to claim the vat on this or not?

Oh and the vat rate would be 8.5 percent with the 1 percent reduction taking it to 7 5 percent first year if I'm right.

Thanks for any advice

Prosperous1

Be my reckoning I'm better off not vat reg. ..
Non vat example. 16.95 plus 3.39 vat =20.34. Sale price 34.99 minus 20.34 equals gross profit 14.65
Flat rate I get roughly 11.67 profit
Normal rate 12.21 profit or have I done my figures wrong?

lovinituk

Prosperous1 wrote: »

I've just gone from sole trader to self employed.

That's the same thing.

HappyMJ

Prosperous1 wrote: »

Be my reckoning I'm better off not vat reg. ..
Non vat example. 16.95 plus 3.39 vat =20.34. Sale price 34.99 minus 20.34 equals gross profit 14.65
Flat rate I get roughly 11.67 profit
Normal rate 12.21 profit or have I done my figures wrong?

I think you've done the figures wrong flat rate at 7.5% of £34.99 is £2.62. £34.99 less £20.34 less £2.62 is £12.03.

The ex-VAT price is £29.16 plus vat so you would pay out £5.83 in VAT. £3.39 to the supplier and £2.44 to HMRC. Your profit is £29.16 less £16.95 making your profit £12.21.

I would say it's very close as it's supposed to be. You would be slightly better off not on flat rate VAT....but flat rate VAT is so much easier to figure out I'd just go with that.

Prosperous1

I don't know why it said sole trader to self employed I'm half asleep. I meant Ltd Co. ..

Prosperous1

@HappyMJ sorry I worked it out at 8.5 percent as I was looking at an ongoing picture after the first years one percent incentive had finished...

lisa110rry

I think you would be okay with flat rate, OP, because you sell mostly to the public. I manage a consultancy wherein we pay expenses and contra-charge our clients, net of VAT of course, with VAT added at the end of the invoice. In that instance, depending on whether the expense is a disbursement on behalf of the client (like buying a software package to be used exclusively by the client) or an expense in the nature of doing the work (like accommodation for meetings on site), the diesbursement to be used by the client goes below the VAT line on the invoice and is claimed gross, whereas, the accommodation invoice should be claimed net of VAT, with VAT below. I shall search for the HMRC information.

Darn it, I'm on my iPad. Google HMRC disbursements and cost invoiced to client.

Prosperous1

Or... am.I better holding off vat reg til absolutely necessary ie I hit the threshold. As it looks like it's fling to hit my profit by over 2 quid a sale...

isplumm

Prosperous1 wrote: »

Or... am.I better holding off vat reg til absolutely necessary ie I hit the threshold. As it looks like it's fling to hit my profit by over 2 quid a sale...

I am on the flat rate scheme - but I am an IT Consultant - so I don't buy much & also all my clients are all VAT registered. Remember you can not normally claim VAT back - unless large purchase.

So for me I would only go on the flat rate scheme if you are NOT buying lots of stuff with VAT on it that you need to claim back.

Mark

Prosperous1

Went for standard rate on the advice of my accountant. She said can always change once we have hard data but as all my purchase have vat then it's prob the best way to go. I have started using free agent account software too which makes it a bit easier to manage