VAT Flat Rate Scheme
Discussion
Are there any PHers using this in their business?
If so, are they sure they are applying it correctly?
I have yet to come across a single client who has opted for this method of accounting for VAT and who has actually completed their returns correctly or paid the correct VAT amounts.
It is a genuine dog's breakfeast of a scheme which is all too easy to misinterpret and get wrong.
If so, are they sure they are applying it correctly?
I have yet to come across a single client who has opted for this method of accounting for VAT and who has actually completed their returns correctly or paid the correct VAT amounts.
It is a genuine dog's breakfeast of a scheme which is all too easy to misinterpret and get wrong.
I keep the books for a few companies and one uses the flat rate scheme. The accountant has calculated that this business is better off on the flat rate scheme.
To me it is a bit wierd and doesn't make much sense. It if was my company I would put it on the 'proper' vat scheme, it would make things so much easier.
To me it is a bit wierd and doesn't make much sense. It if was my company I would put it on the 'proper' vat scheme, it would make things so much easier.
rich1231 said:
Just moved to it.
It makes around £500 a month difference in my fave for the Consultancy biz.
My expenses are always low so I'm going to be gaining from now on.
That's a shit load of cash. I can't imagine they'll give that away without an argument especially if you have a long term history of higher payments?! It makes around £500 a month difference in my fave for the Consultancy biz.
My expenses are always low so I'm going to be gaining from now on.
I am not a huge fan of it as it flies in the face of the way "normal" accounting for VAT works.
However, my main argument is that no-one seems to be applying it properly. Nearly every example of client's workings I've reviewed shows them committing fundamental errors. - like picking the wrong Flat Rate %, or applying the % against their VAT Exclusive Sales rather than their VAT Inclusive Sales, or entering the VAT Exlclusive Sales figure in the Outputs Box of the VAT return - instead of the VAT Inclusive amount.
However, my main argument is that no-one seems to be applying it properly. Nearly every example of client's workings I've reviewed shows them committing fundamental errors. - like picking the wrong Flat Rate %, or applying the % against their VAT Exclusive Sales rather than their VAT Inclusive Sales, or entering the VAT Exlclusive Sales figure in the Outputs Box of the VAT return - instead of the VAT Inclusive amount.
Eric Mc said:
I am not a huge fan of it as it flies in the face of the way "normal" accounting for VAT works.
However, my main argument is that no-one seems to be applying it properly. Nearly every example of client's workings I've reviewed shows them committing fundamental errors. - like picking the wrong Flat Rate %, or applying the % against their VAT Exclusive Sales rather than their VAT Inclusive Sales, or entering the VAT Exlclusive Sales figure in the Outputs Box of the VAT return - instead of the VAT Inclusive amount.
Are they morons then?However, my main argument is that no-one seems to be applying it properly. Nearly every example of client's workings I've reviewed shows them committing fundamental errors. - like picking the wrong Flat Rate %, or applying the % against their VAT Exclusive Sales rather than their VAT Inclusive Sales, or entering the VAT Exlclusive Sales figure in the Outputs Box of the VAT return - instead of the VAT Inclusive amount.
I used to use it in my old business and I think they are still using it now (I sold my share). It was so easy to use and took me about 10 minutes to organise. Add up the income for the 3 months, calculate the VAT @ 5%(membership organisation or something) and send the cheque - done! How do people manage to mess it up?
Have you looked at HMRC's caluclator tool to decide if this scheme is for you?
On my figures I would pay about £1000 per year more, if I joined the scheme - but they suggested I joined anyway to make life more simple!! (Funny enough on it's own, but consider I had the trade as accountancy/bookkeeping)!
On my figures I would pay about £1000 per year more, if I joined the scheme - but they suggested I joined anyway to make life more simple!! (Funny enough on it's own, but consider I had the trade as accountancy/bookkeeping)!
It can get very complicated - especially if the trader carries out a number of different activities. There has been recent case involving a pub/restaurant where the pub selected the wrong %.
If you follow the explicit instructions on the VAT return, you will definitely put some incorrect figures in the boxes. The wording on the normal VAT return is totally incorrect for those using Flat Rate - so, no, my clients aren't morons (on the whole) they were just followed what they were told to do on the Return. It just so happens that what it says on the Return is not appropriate for Flat Rate traders,
If you follow the explicit instructions on the VAT return, you will definitely put some incorrect figures in the boxes. The wording on the normal VAT return is totally incorrect for those using Flat Rate - so, no, my clients aren't morons (on the whole) they were just followed what they were told to do on the Return. It just so happens that what it says on the Return is not appropriate for Flat Rate traders,
I think that there are fundamental flaws to the system. The Fixed Rates were very badly thought out by the Revenue and they seem to give some traders who use the scheme a big advantage over those who don't (or can't). That wasn't its original purpose. It was to simplify the book-keeping requirements for small businesses, not to give them an economic advantage over their competitors.
I have a supiscion that it will be reviewed at some point in the future with a view to evening out the discrepancies between the two systems.
For the moment though, it is well worth looking at as certain activities really do seem to come out very well from the scheme.
I have a supiscion that it will be reviewed at some point in the future with a view to evening out the discrepancies between the two systems.
For the moment though, it is well worth looking at as certain activities really do seem to come out very well from the scheme.
You are right on both counts Eric; the scheme seems to have been thought up in 10 minutes down the pub with the percentages for different sectors just picked randomly. As always though it's best to take advantage of the situation while it lasts. Only problem is that the ceiling limit for earnings isn't very high.
I need to get back to having my own business again....this looking for a job with other people isn't good at all!
I need to get back to having my own business again....this looking for a job with other people isn't good at all!
I also know that VAT Officials are very unclear of the way the scheme operates - and therefore are giving bad or incorrect advice. One of my clients recently had a VAT Inspection and the Inspector recommended that the one of his businesses go over to the Flat Rate Scheme. This was downright wrong as you cannot use the Flat Rate Scheme when you have two or more interlinked VAT trading entities and the turnover of obe or both exceeds the scheme threshold.
I think the whole thing is a total minefield and achieves the exact opposite of what was originally intended i.e. simplification..
I think the whole thing is a total minefield and achieves the exact opposite of what was originally intended i.e. simplification..
I know someone who has quite a few businesses and does exactly that ^^
It might be a mess but it did make my life much easier at the time and saved quite a bit of cash. Always nice to go on the normal scheme when starting up, claim back the VAT on setup costs and then switch across on the next quarter
It might be a mess but it did make my life much easier at the time and saved quite a bit of cash. Always nice to go on the normal scheme when starting up, claim back the VAT on setup costs and then switch across on the next quarter
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