VAT flat-rate scheme

newsmonkey

Quick question about how flat rate VAT works. Yes, I know I probably need to seek proper advice from an accountant, but I'm impatient..

I turn over about £40,000 a year (not VAT registered). My only substantial costs are train tickets which are VAT exempt.

The sector I work in has a flat rate of 11%. By my reckoning, that means charging 17.5% VAT on everything (£40k x 17.5% = £7,000) and paying 11% VAT on everything (£47k x 11% = £5,170).

So a £1,830-a-year bonus for filling in a form and doing some basic accounts?

Am I missing something?

MickKnipfler

Nope, and you get the interest while it's in your bank.....

barriejohn69

Pretty much correct. Only thing to be a bit carefull of is do you invoice domestic customers or business customers? If it is domestic you might lose some business by whacking 17.5% on your prices.

Also, you will be paying tax and NI on the "profit" for the scheme. which will more than likely be 22% tax and 11% NI. Only because you will be showing all income and expenses inclusive of vat on your tax return and accounts.

All in all you should gain on it.

So basically you will pay the tax man 33% of your gain and keep the other 67% in your back pocket. As for the vat returns, don't shell out for some one to do them for you, it is simple. If you are stuck PM me and I will go through it with you.

newsmonkey

Splendid - thank you both for your help.

Two other quick ones: Does it make sense to wait until the new tax year before registering, so my tax accounting period and my VAT accounting period are the same?

The only other thing that's confusing me a bit is when I sometimes add my expenses as an extra line on the invoice (eg: claiming back cost of train ticket somewhere).

Under the flat-rate scheme, do I still treat this as a charge (and part of my turnover) like any other and add 17.5% to it, even though the travel was VAT-exempt?

And if it's an expense I paid VAT on, do I add 17.5% to the final amount I paid or the VAT-exclusive amount?

Aagh. Getting there. Apologies if obvious.

MickKnipfler

I'm not an expert and only registered from Oct myself. VAT is paid quarterly. On the application form, my accountant asked for resistration to commence from 1 Oct, this then aligns with my end of year in September. I think you can then ask for registration from the start of the quarter to save waiting for the end of the year.

Not sure about the expenses one. especially as such things as train fares are VAT exempt...

Elaine_Wilson

You would charge VAT on the total bill to your client as this is the price you are charging for your services. How you calculate this figure is up to you. I assume you use an hourly or daily rate and then add the cost of the train fare.

It is true that you are not paying VAT on the train fare as the provision of transport is exempt. But when you charge your client you are not providing transport to your client, you are merely increasing your charges to ensure your net income is the agreed rate.

The only time the exemption can be carried through to the client is where you are acting as an agent. To be able to exempt the charge the contract would have to be between the rail company and your client. This happens rarely; most commonly with solicitors who, for example, pay for land searches on your behalf and then charge them on to you.

olly300

newsmonkey wrote: »

And if it's an expense I paid VAT on, do I add 17.5% to the final amount I paid or the VAT-exclusive amount?

You will find that most expenses will have VAT added to them. And if you are on the flat rate scheme you don't have to reclaim the VAT unless the amount is over 2K and the item is a capital asset.

This HMRC webpage gives a good explanation:
http://www.hmrc.gov.uk/manuals/bimmanual/bim31585.htm

nicolarichard

Can i jump on this thread please?! My boyfriend began working as a courier driver a couple of months ago. After seeing a very unhelpful accountant, I went to see the tax office who resolved most of my accounting problems, I am now wondering if it is worthwhile to be VAT registered. He invoices for about £650 per week and only pays VAT on petrol and Van Hire which probably adds up to £270 p.w. As i have no clue how this works i am not sure if it is more hassle than it would be worth - any help would be greatly appreciated. Thanks in advance

JasonLVC

If your bf mostly deals with other businesses who are VAT registered then if he registered for VAT he would have to charge VAT on top of his normal costs (ie, £650 + VAT) but his clients would be able to recover the VAT he charges (and thusbe the same price).

By charging VAT your bf can reclaim ALL VAT that he incurs in his businesses such as fuel for the van.

If his customers are mainly not VAT registered or individuals or he has a mix of business/individuals then the decision is a bit harder as he'd have to charge VAT to everyone and for those that cannot recover VAT - Joe Public - then he'd become 17.5% more expensive than his unregistered competitor.

Do the math, the VAT within his £270 pw fuel bill amounts to just £40.21 per week (£270 X 7/47) so to be honest, not worth the hassle of registering for VAT to save £40 per week IMHO. If you factor in cost of van and other expenses then it may be more worthwhile. I trust you get the jist of what I'm saying!.

nicolarichard

Thanks for that - i did get the jist from your clear explanation. He works for just one co. at the moment (Fed Ex) who will be VAT registered but i am not sure what the paperwork/record keeping side of it entails so still unsure if it would be beneficial or not? As you say it would be approx £40 p.w which would amount to £2000+ per year.