Flat Rate VAT Scheme - Contractors/ Small Businesses

[DRD]

Does anyone have experience of this please ? How much work is involved ? What software do you use ?

Conventional wisdom is that you avoid getting involved with VAT registration if possible. It's an admin nightmare, takes ages, VAT is viciously policed etc etc

However, there is an argument that you voluntarily join the Flat Rate Scheme IFF your customers can recover VAT themselves - ie you sell business to business, not business to consumer.

With the flat rate Scheme you add 20% VAT to your invoices. So £100 becomes £120. BUT it is designed to be simple to operate and you only pay £14.40 of this to the government. You don't mess about calculating your input VAT, you just use a simple percentage set by government. The remaining £5.60 is your to keep as taxable profit subject to your usual income tax/ ni/ corporation tax etc.

Any advice/ experience gratefully received

Thanks

 

[DAFlippers]

VAT is not difficult and you can reclaim VAT on purchases. You can use a spreadsheet for submitting VAT return via 3rd parties, e.g 123Sheets.

The flat rate version doesn't allow reclaim of VAT on most purchases.

I have run a business for well over 10 years as VAT registered and never had a problem.

David

 

[MarkS]

VAT is pretty simple - if you sell B2C then avoid it if you can. If you sell mostly B2B then you want to be VAT registered even if you don't meet the threshold yet, a non-VAT registered business raises queries when dealing with a business... plus you can then offset the VAT on your purchases/costs. If you have zero or minimal costs/purchases, eg. a consultancy on-site at clients, then Flat Rate VAT is an option as you don't care about offsetting VAT. So I'd disagree with "conventional wisdom" as it's pretty easy I'd also say it's not "viciously policed" (ask German businesses!) and have found VAT helpline super-helpful in the past... you only have to submit quarterly and have 5 weeks to do so, you can just correct mistakes in the following quarter's return, etc etc.

I do my own VAT returns on a spreadsheet and submit with a third-party Excel addin that costs £9/submision I think (the rules have changed on how you have to submit VAT since MTD, Making Tax Digital). If you use Quickbooks, XERO, etc then I imagine it's all integrated anyway. Don't you have an accountant if you're in business and submitting accounts?

 

[DRD]

Hi.

I am an accountant !!.

But accountants are like Drs, you learn a basic cross section of stuff in your 20s when you do your exams, then you specialise. The last time I did VAT accounting was in the 1990s.

It's for a friend's consulting business. Customers are all businesses that are VAT registered so they are indifferent about whether VAT is charged or not.

The business is below the £90k mandatory vat threshold as some of its supplies are outside the scope of VAT. It only has a small number of invoices a year - say 30. Its cost of sales other than salary is only a grand or two so recovery of input VAT on an invoice by invoice basis would make no sense.

So this flat rate scheme would mean money for nothing (5% to 6% of turnover) in exchange for admin and submitting VAT returns electronically.

 

[MarkS]

Ah right, yes I did flat rate VAT when I worked as a contractor as my purchases were zero most years and better to gain that flat rate "discount"

 

[Crewey]

My wife’s photography business is on the flat rate, the industry rate for her is 11% (10% first 12 months)
It’s possibly something I need to recalculate as at the time (2018) it worked out as a saving, against reclaiming the studio VAT expenses.

I’m no accountant but I submit this to HMRC on her behalf every quarter, there’s lots of free software that HMRC allow for submissions.

Within the flat rate there is allowance to reclaim VAT on 1 capital expense too, this was very useful when the studio was forced to relocate due to the original building owners selling up.

 

[Arv]

Ah right, yes I did flat rate VAT when I worked as a contractor as my purchases were zero most years and better to gain that flat rate "discount"

"Ice Cream Man" if you know you know..

 

[Calimori]

I am coming off the Flat Rate Scheme, my industry got a very poor % and I buy a lot of tech

1. Each industry has a different % on the scheme. Check what % you will get.
   1. You can still claim VAT back but only on invoices for over £2k
      1. But that is the full transaction, so with an £1900 laptop, buy a laptop bag, keyboard, mouse etc all in the same order to get over £2k
   2. Items less than that you can't claim the VAT back,
      1. Think of the money you keep on the flat rate as a pot to cover these <£2k purchases plus your own time
2. Most accountancy software allows you to say 0% VAT, 20% VAT or set it. So if do this sort of accountancy already then it is easy to switch to full or flat rate
   1. If you still do cash, then it is going to be harder.

 

[taz turbo]

I am coming off the Flat Rate Scheme, my industry got a very poor % and I buy a lot of tech

1. Each industry has a different % on the scheme. Check what % you will get.
   1. You can still claim VAT back but only on invoices for over £2k
      1. But that is the full transaction, so with an £1900 laptop, buy a laptop bag, keyboard, mouse etc all in the same order to get over £2k
   2. Items less than that you can't claim the VAT back,
      1. Think of the money you keep on the flat rate as a pot to cover these <£2k purchases plus your own time
2. Most accountancy software allows you to say 0% VAT, 20% VAT or set it. So if do this sort of accountancy already then it is easy to switch to full or flat rate
   1. If you still do cash, then it is going to be harder.

Yes, you can claim VAT back on ONE purchase of over 2K per year, and the item MUST ne a capital purchase.

My experience of claiming VAT back when on the flat rate scheme was not a good one, twice it 'seemed' to trigger a VAT inspection, both times it showed how inept the VAT inspectors were, but it remained my stress until finalised.

I came off the flat rate system recently, I now pay less in VAT than I was on the flat rate system, but everyone's situation is different, different industries work at a different percentage, each business needs to work out what's best for themselves.

 

[Calimori]

The way you word that that could indicates ONE a period and not the wording which is a single purchase:

• a computer package (computer, printer, camera, scanner, speakers, and so on) bought as one package is one purchase of capital expenditure goods — if the package costs £2,000 or more (including VAT) then input tax can be claimed

In otherwords, you can do more than one per year but each much be over £2K in a single transaction.

I bought a computer package and later a data storage package, each was in a single transaction but both have had the VAT reclaimed.