Corporation tax while of flat rate scheme VAT.

seatbeltnoob

Just curious as to how corporation tax is calculated if you are on the flat rate scheme. Does it take the cost Net of VAT at the actual 20% rate for revenue as per invoice or does it use the 9.5% off gross to calculate the revenue?

TheCyclingProgrammer

Your sales will be calculated as the gross amount (inc. VAT) less the flat rate VAT you pay to HMRC. So in other words, the surplus amount you make on the FRS is part of your gross profits for corporations tax purposes. Likewise, whenever you purchase something that includes VAT (which you can't reclaim), the gross amount is used when calculating taxable profits.

So if you make sale for £100 + VAT and your FRS percentage is 9.5%, your net sale will be (£120 - £11.40) = £108.60, which will be added to your company's total income.

You may wish to show the actual net sale and the flat-rate scheme surplus separately in your books. For example, I use FreeAgent and when I was on the FRS, the above example would appear in my Profit & Loss as:

Turnover:
Sales: £100

Other Income:
Flat Rate Scheme Surplus: £8.60

Keeping track of your FRS surplus separately helps you keep an eye on whether the scheme is still profitable (if the input VAT on your annual costs exceeds your annual FRS surplus you should consider leaving the scheme).

seatbeltnoob

Thanks very much. The flat rate surplus reading is very handy indeed.

I have saved £500 last VAT submission and it's likely to be the case going forward as I am spending less input VAT than previous years.

TheCyclingProgrammer

seatbeltnoob wrote: »

I have saved £500 last VAT submission and it's likely to be the case going forward as I am spending less input VAT than previous years.

It sounds like the FRS is a good choice for you then, but make sure you're aware of the limited cost trader rules that came in this April - if you're caught by those, then you're very unlikely to benefit from the FRS.

https://www.freeagent.com/glossary/limited-cost-trader/

It depends what you do - I run a service-based business (software consultancy) and as such most of my costs are services (hosting, software etc.) and as such that made me a limited cost trader, so I left the FRS (my FRS surplus wouldn't have even covered the VAT on my accountancy fees).