Saving VAT money

iskinner

I am a self employed courier. I have just registerd for VAT and plan to put the VAT I charge into a savings account. When I pay my quarterly VAT bill I will take it from this account. It is likely I will put between £350 and £525 per month in to the account. My questions are:

Is this legal?

If it is what the best way to get a return on this money while I have it?

isofa

I assume you are a sole-trader? If so, you and the business are effectively the same entity, obviously you should split your business account transactions from your personal account.

However, as long as you document what you do with the money, and you have enough to pay the return, I can't see any problem at all. Just keep all your records for 6 years.

If you pay VAT on-line you also have longer time to pay it too.

oldfella

register for cash accounting - you get another month

isofa

Or of course you could register for the flat rate scheme (if it looks like it'll be a little profitable for you), and then you don't have to worry about VAT in so much detail!

oldfella

Or of course you could register for the flat rate scheme (if it looks like it'll be a little profitable for you), and then you don't have to worry about VAT in so much detail!

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maybe - but you should pay tax on the profits from flat rate so its not that much of a saving in effort

isofa

oldfella wrote: »

maybe - but you should pay tax on the profits from flat rate so its not that much of a saving in effort

Not necessarily, not only can you potentially save money, but you also save on paperwork - essential to a small business owner.

The flat rate is much lower than 17.5% but it varies depending on your business type (Trade Sector).

http://www.hmrc.gov.uk/manuals/bimmanual/BIM31585.htm

and

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageImport_ShowContent&propertyType=document&columns=1&id=HMCE_CL_000345#P169_14601

But, you don't have to record VAT you spend on outgoings, as you don't directly claim any back, you just pay a lower rate of VAT on your invoiced amounts in the first place. You still invoice your clients the current VAT rate though.

Some small businesses can be better off by several percent, in all depends out much expenditure you have.

If you have a years worth of average turnover and expenditure it's pretty easy to work out if it'll be beneficial.

Obviously your business must turnover less than than the limit too (150K this year, 187.5K next year)

oldfella

I dont disagree with the benefit - I use flat rate and make a useful margin on it - however, if you dont record incoming VAT you cant work out how much VAT you have paid - which means you will end up overpaying income tax or corporation tax on your profits.