VAT Registered -> Flat Rate VAT Registered?
Discussion
I am finally using my own Ltd company for my contracting work. As a small business I could benefit from signing up to the flat rate VAT scheme as my rate is +VAT @ 17.5% and I understand engineering sector flat rate is ~10-12%.
How do I go about changing from what I assume is normal VAT registration to flat rate?
How do I go about changing from what I assume is normal VAT registration to flat rate?
emicen said:
I am finally using my own Ltd company for my contracting work. As a small business I could benefit from signing up to the flat rate VAT scheme as my rate is +VAT @ 17.5% and I understand engineering sector flat rate is ~10-12%.
How do I go about changing from what I assume is normal VAT registration to flat rate?
How do I go about changing from what I assume is normal VAT registration to flat rate?
They have an upper limit on the flat rate scheme which they do an a rolling year. Depending upon your sector and provided you don't buy to much VAT stuff/services it can be good.
emicen said:
Eric Mc said:
Just be aware of the pitfalls. It is very different to "normal" VAT with certain odd consequences.
I didnt think it'd be as simple as gouging a margin out the system.
I'll ask my accountant about it.
Cheers guys.
My experience of it is that it has really been a godsend. I can literally add up all turnover and times it by the set %age.
The other thing to remember is that the saving isnt as great as you immediately think, as for example if your sectors %age is 12% you dont save 5.5%
This is because the 17.5% is added to the ex Vat amount wheras the flat rate is taken *from* the inc VAT total.
On a £1000 plus vat invoice you would pay £175.
Flat rate would be 12% of £1175 which is £141. So the saving is 3.4% not 5.5%.
The finanancial point against the system is of course you cannot reclaim VAT in the usual way - so you need to weigh up the financial costs and benefits along with the time saving.
However, you can reclaim VAT from capital purchases over £2000 as normal. So basically, you just structure your purchases to come all at the same time!
I have also noticed in my reviews of clients who use the Flat Rate Scheme is that every single one of them has entered the wrong Output amounts in Box 6 of the return.
The way you complete the return when on the Flat Rate Scheme is very different to when you are on "Normal VAT Accountiing".
Under normal VAT return rules, the figure entered in Box 6 is the VAT EXCLUSIVE value of all Sales.
Under the Flat Rate Scheme, the Sales figure entered in Box 6 is the VAT INCLUSIVE total of Sales.
The reason why so many people are getting this wrong is because the wording on the return itself is geared towrads normal style returns and is incorrect for those on the Flat Rate Scheme. HMRC really should have designed a different type of return for Flat Rate Scheme traders as the traditional return is misleading in these circumstances.
The other major point people have to be wary of is, if you DO make an Input VAT claim when purchasing an item costing over £2,000, you MUST remember to charge VAT at 17.5% and pay this full VAT amount over to HMRC when the item is sold at a future date - which may be a number of years after the item was originally purchased.
The way you complete the return when on the Flat Rate Scheme is very different to when you are on "Normal VAT Accountiing".
Under normal VAT return rules, the figure entered in Box 6 is the VAT EXCLUSIVE value of all Sales.
Under the Flat Rate Scheme, the Sales figure entered in Box 6 is the VAT INCLUSIVE total of Sales.
The reason why so many people are getting this wrong is because the wording on the return itself is geared towrads normal style returns and is incorrect for those on the Flat Rate Scheme. HMRC really should have designed a different type of return for Flat Rate Scheme traders as the traditional return is misleading in these circumstances.
The other major point people have to be wary of is, if you DO make an Input VAT claim when purchasing an item costing over £2,000, you MUST remember to charge VAT at 17.5% and pay this full VAT amount over to HMRC when the item is sold at a future date - which may be a number of years after the item was originally purchased.
Makes sense it isnt as simple as how the idea was pitched (by a sales rep for a composite provider, or rather, professional accountancy service as they now are).
The idea of getting paid £x/hr + 17.5% but only paying 12%ish on VAT was entriguing. I'll see what my mate says to it (the accountant).
Is there a form that would need filling in to go from normal VAT to flat rate or can it be taken care of via a phone call to HMRC?
The idea of getting paid £x/hr + 17.5% but only paying 12%ish on VAT was entriguing. I'll see what my mate says to it (the accountant).
Is there a form that would need filling in to go from normal VAT to flat rate or can it be taken care of via a phone call to HMRC?
Eric Mc said:
I have also noticed in my reviews of clients who use the Flat Rate Scheme is that every single one of them has entered the wrong Output amounts in Box 6 of the return.
The way you complete the return when on the Flat Rate Scheme is very different to when you are on "Normal VAT Accountiing".
Under normal VAT return rules, the figure entered in Box 6 is the VAT EXCLUSIVE value of all Sales.
Under the Flat Rate Scheme, the Sales figure entered in Box 6 is the VAT INCLUSIVE total of Sales.
The reason why so many people are getting this wrong is because the wording on the return itself is geared towrads normal style returns and is incorrect for those on the Flat Rate Scheme. HMRC really should have designed a different type of return for Flat Rate Scheme traders as the traditional return is misleading in these circumstances.
The other major point people have to be wary of is, if you DO make an Input VAT claim when purchasing an item costing over £2,000, you MUST remember to charge VAT at 17.5% and pay this full VAT amount over to HMRC when the item is sold at a future date - which may be a number of years after the item was originally purchased.
The way you complete the return when on the Flat Rate Scheme is very different to when you are on "Normal VAT Accountiing".
Under normal VAT return rules, the figure entered in Box 6 is the VAT EXCLUSIVE value of all Sales.
Under the Flat Rate Scheme, the Sales figure entered in Box 6 is the VAT INCLUSIVE total of Sales.
The reason why so many people are getting this wrong is because the wording on the return itself is geared towrads normal style returns and is incorrect for those on the Flat Rate Scheme. HMRC really should have designed a different type of return for Flat Rate Scheme traders as the traditional return is misleading in these circumstances.
The other major point people have to be wary of is, if you DO make an Input VAT claim when purchasing an item costing over £2,000, you MUST remember to charge VAT at 17.5% and pay this full VAT amount over to HMRC when the item is sold at a future date - which may be a number of years after the item was originally purchased.
Agreed. I had to ring the advice line to get confirmation on how to fill the form in, and every quarter I have to double check I am doing it the right way.
I would have thought they could have stretched to rejigging the form for the flat rate companies to make it clearer!?
For the uninitiated, you basically have to ignore what the boxes are stated they are for for you to fill in and substitute the flat rate figures which of course are calculated differently.
Of course if you are not a professional, and filling out a form under threat of prosecution for a false return you have to have your wits about you. I actually now find it easier to use a spreadsheet to work the figures out and that shows me what to put in each box, so I can just ignore what the boxes are stated they are for, rather that read them, and confuse myself!
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