Flat rate Vat question!

rob88qtv8

Hi there.

im thinking of going self employed and using the flat rate vat scheme.

I will be invoicing one customer in the transportation sector at 10% and as a driving instructor which I guess would be at 12%

Can you use the flat rate but work in two sectors?

Can that work?

thanks in advance 

rob88qtv8

Sorry to clarify, I will have two customers, one in transport and the other in driver training.

Pennywise

You can't have two different rates.  The rate you use on ALL income is the rate based on your main/primary income source, i.e. if your driving instruction produces over half your income, you use that rate for ALL income.

ceh209

It's YOUR industry which matters, not which industry your customers are in. What is it you will be invoicing these clients for?

Jeremy535897

The most important question is whether your customers are VAT registered. It does not sound as if you are going to be instructing the public. If your customers are VAT registered and can recover all their input tax, why would you adopt a flat rate VAT scheme?

Grumpy_chap

Jeremy535897 said:

The most important question is whether your customers are VAT registered. It does not sound as if you are going to be instructing the public. If your customers are VAT registered and can recover all their input tax, why would you adopt a flat rate VAT scheme?

It can be just a lot simpler.
So long as not a "low cost trader", the flat rate charges can sometimes allow recovery of higher input VAT than actually paid out.
The OP will also benefit from an additional percentage for first year to reflect start up costs.

Jeremy535897

One reason I asked is:

"2.3 Which businesses cannot use the scheme

Not every business will benefit from the scheme:

• if your customers are VAT registered you will have to calculate the VAT and issue VAT invoices in the normal way
• for businesses who buy and sell goods from outside the UK, the scheme may become more complex, (see paragraph 6.4)
• if you usually claim input tax, (see paragraph 2.4)

Also, as the flat rates are averages, you may pay more VAT on the Flat Rate Scheme than you would on normal accounting."

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

Pennywise

Jeremy535897 said:

One reason I asked is:

"2.3 Which businesses cannot use the scheme

Not every business will benefit from the scheme:

• if your customers are VAT registered you will have to calculate the VAT and issue VAT invoices in the normal way
• for businesses who buy and sell goods from outside the UK, the scheme may become more complex, (see paragraph 6.4)
• if you usually claim input tax, (see paragraph 2.4)

Also, as the flat rates are averages, you may pay more VAT on the Flat Rate Scheme than you would on normal accounting."

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

That's just the usual HMRC lazy wording.  There's nothing in law to stop a VAT registered trading using the Flat Rate scheme if all their customers are VAT registered.  Many prefer it because it benefits them, i.e. if they don't incur much input VAT on their costs.  The use of "WILL HAVE TO" in that VAT notice has no force of law - it's just HMRC's wishful thinking.

Jeremy535897

Actually, the wording doesn't say you can't use the flat rate scheme if your customers are VAT registered, it merely points out that you have to issue them with VAT invoices as usual (if you didn't, they would struggle to recover the VAT). That removes some of the administrative benefit. As to whether the flat rate scheme is beneficial in tax payment terms, I guess you just have to crunch some hypothetical numbers.