Corporation Tax and VAT flat rate

[Dave Shaw]

Does anyone know if a 'profit' of using the VAT flat rate scheme is chargeable to corporation tax?

e.g. invoice £1,150 in a qtr. Output tax = £150
say it doesn't purchase anything
Applies VAT flat rate of 11.5% = £132.25

So effective profit £17.75 - is this taxable under CT?

Thanks in advance

Dave

[The Master]

Does anyone know if a 'profit' of using the VAT flat rate scheme is chargeable to corporation tax?

e.g. invoice £1,150 in a qtr. Output tax = £150
say it doesn't purchase anything
Applies VAT flat rate of 11.5% = £132.25

So effective profit £17.75 - is this taxable under CT?

Thanks in advance

Dave

Yes its taxable by default, in the same way that if the flat rate scheme creates a deficit, it is allowable.

e.g. (pence removed for clarity)


Std rate calc (First Calc): Sales 1150 less 150 Vat = Turnover of 1000
Flat rate calc(Second Calc): Sales 1150 less 132 Vat = Turnover of 1018




But in real life, say only expense was accountants fees of 400

Taxable Profit (TP) is Turnover less expenses (no adjustments needed in this case)


So pretend accountant is not vat registered:::

First Calc TP = 1000-400 ie 600
Second Calc TP = 1018-400 ie 618
so you'd pay tax on an extra 18 quid


However if accountant does charge you vat then:::

First Calc TP = 1000-400 ie 600 (ie you claimed Vat back on accts fees)
Second Calc TP = 1018 - 460 ie 558 (Ie you lose the vat on fees)

so you will pay less CT because you lose out on the flat rate scheme

Remember::: The flat rate scheme was brought in to just make record keeping easier for the small business. Its swings and roundabouts, and the only reason for entering it (or remaining in it) is if it beneficial to the trader.