Why Can't VAT Reg'd firms be...

[Glassman]

...exempt from PAYING VAT??

If you are registered and we are too, why not just make it VAT free and save all that blimmin paperwork????

(Yes, I'm doing my returns!)

Why can't those who are registered for VAT have a card that you wave at the supplier to save everyone a headache?!?

[Gordon Brown]

Glassman said:

...exempt from PAYING VAT??

If you are registered and we are too, why not just make it VAT free and save all that blimmin paperwork????

(Yes, I'm doing my returns!)

Why can't those who are registered for VAT have a card that you wave at the supplier to save everyone a headache?!?

You can do the thing where you charge VAT but only pass on about 13% and then don't reclaim any as I recall. Set at about 3-5% below the going rate depending on sector. Your rolling turnover has to be under about £150K.

[Glassman]

Gordon Brown said:

Glassman said:

...exempt from PAYING VAT??

If you are registered and we are too, why not just make it VAT free and save all that blimmin paperwork????

(Yes, I'm doing my returns!)

Why can't those who are registered for VAT have a card that you wave at the supplier to save everyone a headache?!?

You can do the thing where you charge VAT but only pass on about 13% and then don't reclaim any as I recall. Set at about 3-5% below the going rate depending on sector. Your rolling turnover has to be under about £150K.

The thing?

Charge 17.5 and keep 4.5 for yourself before handing over the remaining 13?

4.5% Hmmm

[plasticpig]

Err because the HMRC would lose lots of revenue? Not all VAT is reclaimable.

[Glassman]

plasticpig said:

Err because the HMRC would lose lots of revenue? Not all VAT is reclaimable.

Poor HMRC.

[Eric Mc]

"The Thing" is more commonly called "The Flat Rate Scheme". Although it sounds simple, it has a number of pitfalls associated with it. It's worth looking at if you are eligible but be sure you understand the full implications of operating the scheme - and the very different type of information needed on the VAT returns.

[JustinP1]

Eric Mc said:

"The Thing" is more commonly called "The Flat Rate Scheme". Although it sounds simple, it has a number of pitfalls associated with it. It's worth looking at if you are eligible but be sure you understand the full implications of operating the scheme - and the very different type of information needed on the VAT returns.

We run the flat-rate scheme, its pretty useful for us. heres the main points:

1) You can't reclaim input VAT apart from capital purchases over £2000.
2) You charge VAT at the normal rate.
3) You would out the VAT to be paid from a percentage of your total *inc VAT* turnover.
4) You have to bodge the existing form and put in figures for inc VAT turnover in other boxes as they haven't yet designed its own form.

So, for us it is a lot quicker. The money saved is slight, although it must be said that it does change the way you do business as you try not to make capital purchases until you need to spend £2k.

The other factor is that although the percentage for each 'trade' is lower than 17.5% remember the 13% rate is on total turnover including VAT so it isnt as much of a saving as you would first think.

For example, on a £100 invoice, a 4.5% 'saving' isnt £4.50 as

Standard scheme: VAT at 17.5% on £100 is £117.50 - £17.50 paid.

Flat Rate at 13%: is still £117.50 charged, but what is paid is 13% of £117.50 which is £15.27.

So a 'saving' of £2.23.

That still sounds OK as 2.23% is better than nothing, but if you remember all of the purchases during the year which you now cannot claim any VAT back for, it will either work out quite similar or even leave you worse off.

The thing to do is look thorugh your last set of books and work out what would have been reclaimed in VAT compared to your saving to see if you would be any better/worse off.

[Eric Mc]

The essence of this scheme was to allow small traders to cut down their paperwork, not to save them money. However, many businesses are finding that it DOES save them money. It is also essential that they have selected the correct % for their particular trading activity. As the % is self-selected by the trader, woe betide any trader who has selected the wrong rate. So far, I haven't heard of anyone being picked up on this yet - but I'm sure some have.

Also, EVERY business I have come across which uses this scheme have been filling in their VAT returns incorrectly - until I sorted them out, of course.
Basically, they are lured into putting the wrong Sales figures in the Outputs box on the VAT Return. This is because the explanatory note on the VAT return is NOT CORRECT for Flat Rate Scheme traders.
HMRC should provide a different type of return for the Flat Rate Scheme because the way it operates is so fundamentally different to "normal" VAT.

[Noger]

You get a nice 1% reduction in your flat rate VAT in your first year too. Which is nice.

I assume Eric Mc is talking about Box 6, which should be Gross of VAT (so £117.50 above) ?

[Eric Mc]

Yes. Everyone seems to enter the "VAT Exclusive" figure by mistake (because that is what the VAT return says you should do - which is not correct for those on the Flat Rate Scheme).