Flat rate VAT for sole trader - benefit?

[jon-]

Quick question just to verify man-maths.

I'm a sole trader and sell advertising primarily, not VAT registered. If I registered I should be 11% flat VAT rate.

I've picked these example numbers out of thin air as they're dead easy to work with, can someone tell me if my logic is correct?

Example years income: £60,000
Example years expenses: £12,000

If registered for flat rate VAT, assuming all income could be charged VAT, cash income would be £72,000 (£12,000 VAT).

Of that you would have to pay HMRC 11% of £72,000, so £7,920.

As you would not be allowed to claim VAT back on expenses, I assume the VAT no longer goes against the P&L. In theory if all £12,000 expenses were VAT qualifying, it would reduce the expenses by £2000.

This means you would finish the year £2,080 better if registered for VAT at 11%.

Is this correct?

Thanks in advance.

Edited by jon- on Wednesday 12th December 11:23

[Mr Pointy]

Pretty much, which is why it can be attractive to sign up. It was especially benficial for traders who were just selling themselves & didn't have much in the way of expenses like stock which is why HMRC has created a special category called a 'limited cost business' & slapped them with a 16.5% rate. Check this doesn't apply to you:

https://www.gov.uk/vat-flat-rate-scheme/how-much-y...

Note that you might need to check the definition of 'goods' referred to on that page as it might not be the same as your expenses that you're thinking of. If you're selling advertising I wouldn't surprised if you come under the limited cost business definition.

[jon-]

Thanks for the reply, appreciated.

I'm now wondering whether I fall under "Advertising" or "Entertainment or journalism".

I have a website and youtube channel I write for and film for, but the income comes from advertising.

Ambiguous as ever It's 11% vs 12.5%

[Mr Pointy]

jon- said:

Thanks for the reply, appreciated.

I'm now wondering whether I fall under "Advertising" or "Entertainment or journalism".

I have a website and youtube channel I write for and film for, but the income comes from advertising.

Ambiguous as ever It's 11% vs 12.5%

Well I'd try for the Entertainment. But what goods do you buy? If you don't buy stock etc then you may be rated at 16.5%.

Edited by Mr Pointy on Wednesday 12th December 17:33

[Mr Pointy]

Note that when working out if you are a limited cost business you cannot include:

• capital goods (such as new equipment used in a business)
• food and drink (such as lunches for staff)
• vehicles or parts for vehicles (unless running a vehicle hiring business)

[Vincecj]

Is your target market vat registered?

[drmcw]

FWIW I was a sole trader developing bespoke software and I went onto the flat rate scheme which was just about worth it financially but meant that the admin burden was hugely reduced. To be fair it's probably not great for you now as you probably have good software but I never bothered and I could complete my VAT return in no time at all and didn't need to keep VAT records in quite such detail.

Mike

[jon-]

Mr Pointy said:

Note that when working out if you are a limited cost business you cannot include:

• capital goods (such as new equipment used in a business)
• food and drink (such as lunches for staff)
• vehicles or parts for vehicles (unless running a vehicle hiring business)

Ooo this is interesting. Cost of business outside of vehicle is hosting, which is around £1,000 / year, an a lot of travel to get to test facilities, I sometimes buy tyres to test, last year I must have paid my camera man and drone guy towards 10k... does that count?

I'm sure I could argue my vehicle too. The M3 is pretty much 80% business use for testing and video purposes.

[jon-]

Vincecj said:

Is your target market vat registered?

I generally invoice the big tyre companies for advertising so yes they're vat registered.

Google runs reverse vat scheme out of ireland, but from what I understand this can be zero rated on entry so not applicable to flat vat scheme?

[Eric Mc]

jon- said:

Ooo this is interesting. Cost of business outside of vehicle is hosting, which is around £1,000 / year, an a lot of travel to get to test facilities, I sometimes buy tyres to test, last year I must have paid my camera man and drone guy towards 10k... does that count?

I'm sure I could argue my vehicle too. The M3 is pretty much 80% business use for testing and video purposes.

Cars are a special case so be very careful.