Flat rate scheme

happysallyanne

I am a self employed courier , have been more many years . I deal with just one company and get paid monthly from them. I do my own self employed assessment each year . I have recently been told I would benefit by going on the VAT flat rate scheme . I have started to look into this . Can anybody give me any more advise on the flat rate scheme please ? 

Grumpy_chap

Vat flat rate scheme is simple to administer.  If you avoid the "low cost trader" restrictions, you'll probably make a small amount of gain as well.

happysallyanne

Thank you . Hope it's not too difficult to set up .

happysallyanne

I have read somewhere it can be back dated , is this right ? And if so , how far can it go back ? 

Pennywise

happysallyanne said:

I have read somewhere it can be back dated , is this right ? And if so , how far can it go back ? 

HMRC will allow businesses to retrospectively join the FRS, but only in ‘exceptional’ circumstances.  If a business finds that by joining the FRS it can save, for example, £1,000 per annum and wants to backdate its application to take advantage of the saving, HMRC will almost certainly reject the application. 

Pennywise

Grumpy_chap said:

Vat flat rate scheme is simple to administer.  If you avoid the "low cost trader" restrictions, you'll probably make a small amount of gain as well.

Gains can be quite considerable.  The FRS allows you to charge 20% more to your customers, and only pay over 10% of the gross turnover to HMRC.  So if you charge, say, £100, you add vat of £20, and your customer pays you £120, but you only hand over £12 to HMRC, meaning a "profit" of £8 on every £100 you charge.  Assuming your customers are VAT registered businesses, they can reclaim the £20 you charged them, so they're no worse off. 
The problem comes with customers who can't reclaim the VAT, i.e. domestic customers, small non VAT registered businesses, charities, VAT registered businesses on FRS themselves, etc.  By being VAT registered and charging VAT, those customers are suddenly seeing a 20% increase in your prices.  You have to evaluate which of your customers will be able to reclaim the VAT you charge them, and which can't, and you'd probably have to absorb the VAT loss on the non VAT reg customers if you want to keep their custom.
A further benefit of VAT registration for a courier is that you'll be able to reclaim input VAT on the purchase of your van as long as it cost you more than £2k and you bought it from a VAT reg garage who charged you VAT on it.  So, if you bought a van for £10k plus £2k VAT, you can reclaim the £2k VAT.  You can even do that on your first VAT return if you bought the van a couple of years ago, prior to VAT registration.

happysallyanne

Pennywise said:

Grumpy_chap said:

Vat flat rate scheme is simple to administer.  If you avoid the "low cost trader" restrictions, you'll probably make a small amount of gain as well.

Gains can be quite considerable.  The FRS allows you to charge 20% more to your customers, and only pay over 10% of the gross turnover to HMRC.  So if you charge, say, £100, you add vat of £20, and your customer pays you £120, but you only hand over £12 to HMRC, meaning a "profit" of £8 on every £100 you charge.  Assuming your customers are VAT registered businesses, they can reclaim the £20 you charged them, so they're no worse off. 
The problem comes with customers who can't reclaim the VAT, i.e. domestic customers, small non VAT registered businesses, charities, VAT registered businesses on FRS themselves, etc.  By being VAT registered and charging VAT, those customers are suddenly seeing a 20% increase in your prices.  You have to evaluate which of your customers will be able to reclaim the VAT you charge them, and which can't, and you'd probably have to absorb the VAT loss on the non VAT reg customers if you want to keep their custom.
A further benefit of VAT registration for a courier is that you'll be able to reclaim input VAT on the purchase of your van as long as it cost you more than £2k and you bought it from a VAT reg garage who charged you VAT on it.  So, if you bought a van for £10k plus £2k VAT, you can reclaim the £2k VAT.  You can even do that on your first VAT return if you bought the van a couple of years ago, prior to VAT registration.

Thank you do this reply , very informative . I will persevere with this application now 

polymaff

Before you commit, do make sure that you understand the issues around Limited cost businesses.

https://www.gov.uk/government/publications/vat-notice-733-flat-rate-scheme-for-small-businesses/vat-notice-733-flat-rate-scheme-for-small-businesses

At one time FRS saved low-costs businesses a bomb.  HMRC finally woke up to this and made it much worse for businesses selling services rather than goods. Check it out.

Pennywise

polymaff said:

Before you commit, do make sure that you understand the issues around Limited cost businesses.

https://www.gov.uk/government/publications/vat-notice-733-flat-rate-scheme-for-small-businesses/vat-notice-733-flat-rate-scheme-for-small-businesses

At one time FRS saved low-costs businesses a bomb.  HMRC finally woke up to this and wiped out this benefit overnight. Check it out.

HMRC have confirmed couriers/van drivers don't fall under the limited cost trader rate, so the 10% flat rate applies rather than the 16.5% limited cost trader rate.

polymaff

Have you a reference?  I am out-of-date, perhaps, but the regulations introduced at the time made it clear that couriers were required to follow the  “limited-cost trader” regime - albeit with the concession that they could include fuel as part of their "Relevant Goods" computation.

happysallyanne

Are there any other couriers on here that are on the Flat Rate Scheme . I am still not sure it’s going to be better for me or not 🤷🏼‍♀️