[dustdees]

Hi all,

I at that dreaded time when I have to seriuosly consider registering for VAT. Do any of you use the flat rate scheme?

If so, does it save you any money, time, etc, etc?
In'm in the middle of rejigging the business as well, new rates etc, having a nightmare but getting there!!

Many thanks, and looking forward to some suggestions


Denise

[Ian Rochester]

We use the flat rate scheme, currently it works well for us, saves us hundreds each month in VAT bill, you can still claim any purchases over £2K, however you can only use it if your turnover is below £185K.

[*Chris Browne]

I use the flat rate scheme, best thing i ever did, saves time on paperwork and can (not always) save money, and it takes two minutes of a phone call to those nice people at the hmrc...to sort out....


 

[Prestige1]

Can not understand how it saves you money? I can see the bennifits in terms of cash flow and budgeting. but how do you save money, if they estimate it over a year, if its wrong surely they will expect you to pay the differance? Phil

[J. Deans]

If I understand it right, the flat rate scheme is a banded estimate of how much VAT you will charge in a year and how much you are likely to claim back from your running costs and expences (receipts)

You will rarely be better off. Think about it: With normal VAT, you charge your clients VAT - pay it to the tax man, nothing lost. Then claim back the VAT you have had to pay out, your gain. There's not that much paperwork for a service industry, only when you are a supplier. As New-Build cleaners, most of the work we do is Construction Industry exempt. And the rest can all be done easily online anyway.

With the flat rate scheme, you will always have to pay the VAT man what he estimates you will charge for the year - regardless of whether or not you just lost a contract - or didn't get the contract you were after. It is tilted in the VAT mans' favour - however you look at it.

I don't know about the purchases thing over 2k, but if that is true - you will lose £350 straight away on not being able to claim your VAT back on anything under that!

Correct me if I am wrong please, but that was the way I think my accountant explained it last year when I had to register for VAT

[Cleaning Resource]

quite agree, a vat return is 4 questions.........

        total income before vat
        total out goings before vat
        vat collected
        vat payed

I would just go for the usual invoice accounting, 
       

[Ian Rochester]

Wrong!

Flat rate scheme is a system where you only look at your turnover for each 3 month period and you pay a reduced rate of VAT on that (11% for cleaning, discounted by 1% in first year) regardless of any purchases you have made.

eg:

Flat Rate Scheme

3 month turnover inc VAT @ 17.5%       £50,000

VAT due @ 11%                                     £5,500

Standard Rate

3 month turnover inc VAT                       £50,000

VAT due @ 17.5%                                   £8,750

Less any vat from purchases


Therefore depending upon what VAT purchases you make in that 3 months you could save up to £3,250 in VAT.

Even on the flat rate scheme you can claim the VAT back on purchases over £2000 net (£2350 inc)

In the cleaning business most of your costs, if you are anything like us, will be wages and are therefore not liable to VAT, so you need to be purchasing a lot of equipment in order to make the Std rate scheme better for you than the flat rate scheme.

We saved over £2,000 in VAT payments for the last quarter alone, we still charge the customer the full 17.5% but only pay the VAT man the flat rate level.

[*Chris Browne]

Thank you lionhart, you beat me to it, i would advise anyone to speak to there accountant, the scheme is not (as i stated) suitable for all, but for the majority of small business's its a godsend. ..i have saved a packet...


Chris

[J. Deans]

Ok.

Whether standard VAT or flat rate scheme, any business that has just reached the point of mandatory registration will have to settle with the VAT man 4 times each year. Every 3 months as you said, but not just because it is the flate rate scheme.

You say not suitable for all. So who is it suitable for? That's what Dustdees needs to know.

Obviously her turnover is less than £50k per quarter - as she is only just in the position of having to register (Currently £64k per year I believe)

So the £50k figure is meaningless to her question. And as Lionheart pointed out, at £50k per quarter - this would take the annual turnover above £185k!

As no one seems to be able to give any definative advice for your situation, I would strongly suggest you visit your accountant and arrange a one-off consultation and setup fee with him. It could be a lot cheaper in the long-run, than making a poor judgement based on comments on a forum.

I wouldn't advise, however, arranging for him to complete your quarterly returns. It is money for nothing. They are very simple to complete yourself online now.
The next best advisor to your accountant - is the VAT man himself - use him!

Hope this helps...

[Moderator David@stives]

Beware of an accountants advice it is in there financial interest for you to go down the 17.5% route.

17.5% rate = More paperwork = bigger accountant bill

Flat rate = less paperwork = smaller accountant bill

[Ian Rochester]

It is mainly of benefit to those who have low vatable outlays

ie a window cleaning business will have very little in the way of costs, the main cost will be wages (if they employ)

Other business like hairdressers tend to go down the flat rate route as again their main costs are staff, their material costs are relatively low.

It's not suitable for businesses where the majority of your costs are on materials to do the job, ie joinery, builders etc.

Here is a link to the Inland Revenue for flat rate

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_InfoGuides&id=HMCE_CL_000345&propertyType=document#P36_2759

[Andy Foster]

Your accountant works for YOU, if they are so unscrupulous that they would do what you suggest then it is time to get a new accountant.

Any GOOD accountant will let you know whether or not it is in YOUR interest to go flat rate.

Don't take anyone's advice but your accountant's.

Mine is sorting it out for me now... his suggestion... good accountant.

Andy

[Ian Rochester]

Andy,

I would always recommend that you use a good accountant, I have used one even before I started down the self employed route.

We sit down every 3 months and look at where the business is and what we need to do, this is how we decided to go down the flat rate route, all our previous figures showed that overall this is the best route for us at present.

We have also just made the decision, not lightly, to make the business limited, again the figures showed that this was the best way to maximise the profits.

I also use him to do costing models and justifications for major purchases.

 

[Bertie Boo]

I worship the ground my accountant walks on.

When i first met him i said "Brian, people give me the keys to their houses and beg me to sort their crap out. I need you to do the same with my books..."

And god love 'im, he does just that.

Stephen

[heritagecleaning]

Lionheart

You're wrong - it's 11% of 50,000 PLUS VAT which you have to pay i.e. 11% of 58750 = 6462.50

That said, it's a good scheme. I make an extra 2 grand a year because I'm on the flat rate. How? Because the 11% rate makes a much bigger allowance for expenses than the expenses I actually incurr.


Owen

[Ian Rochester]

Owen,

Don't want to get into an argument but I'm not wrong, we've each just worded it differently.

My figures were actually £42553.19 +vat = £50,000, or as I worded it £50,000 including vat

Yours were £50000 + vat = £58,750

[J. Deans]

Remember 'Backwards VAT'?

TOTAL  X  7  DIVIDED BY  47  =  VAT.


Question:

When your VAT comes to £xxx.356241... etc

Do you round 'up' or 'down' ?

[heritagecleaning]

Ok Lionheart, I see where you're coming from now