cash based Flate Rate VAT

[Bridget1968]

A client of mine has just registered for vat, they have been advised by their accoutants to used the cash based flat rate.
I was under the assumption that you could not use cash accounting with the flat rate scheme???

Can someone please give me some info. on this or point me in the right direction.

Many thanks, Bridget :|

 

[Bridget1968]

Looking into this do i just apply the flat rate % to the cash received in the vat quarter?
I am assuming that I dont account for vat on supplies as this is built into the flat rate %

Thanks for any replies, Bridget

 

[MillerConsultancy]

Hi Bridget

You have to determine the correct rate for your sector, then apply this % to your gross sales including vat. As you say there is no reclaim on purchase although younare able to claim for large capital expenditure.

If its your first year's vat registration you also get a 1% discount


Julie
www.millerconsultancy.biz

 

[elaine@cheapaccounting]

yes you can use cash accounting with it

Don't forget the falt rate applies to e.g. interest received as well.

I would recommend some reading of the scheme here ..

http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm

http://customs.hmrc.gov.uk/channels...cument&columns=1&id=HMCE_CL_000345#P690_53455

 

[MyAccountantOnline]

A client of mine has just registered for vat, they have been advised by their accoutants to used the cash based flat rate.
I was under the assumption that you could not use cash accounting with the flat rate scheme???

Can someone please give me some info. on this or point me in the right direction.

Many thanks, Bridget :|

Hi Bridget

Yes you can as others have said.

I'd recommend having a read of the HMRC guidance Elaine posted the link for its quite good.

Another thought - why not speak with your clients accountants and get them to help you. It can be very beneficial to all involved to have good lines of communication and they will probably be very happy to help (if only because working with you is quite likely to save them time and hassle in future). It may also enable you to development links for future work on other clients too.

 

[MrAnchovy]

Don't forget the falt rate applies to e.g. interest received as well.

Good grief Elaine, I have never noticed that - what on earth is the logic for that? Thanks for the heads up.

 

[David Griffiths]

Good grief Elaine, I have never noticed that - what on earth is the logic for that? Thanks for the heads up.

The logic is that the flat rate is a compromise rate applied to the whole of a business's income, to make things simple. It wasn't intended to save people money. It seems that HMRC took figures from a whole range of small businesses before arriving at the flat rate percentages. That rate is applied to all business income, including interest, rent, insurance commissions etc

There are, of course, people who gain from the scheme, and most of those who would lose don't sign up. I've had a business with a high level of invested cash lose out because of the scheme, and people who export a lot or have a higher than average level of zero or exempt sales

Some people who lose out don't care because their work on the return is cut dramatically - more relevant to manual systems than computer based packages

 

[Bridget1968]

Thanks for your replies, I will certainly speak to the accountants involved.

Just out of curiosity though i am reading that i need to find out the % deduct 1% as it is their first year of registration and then work out the % of flat rate vat on gross sales (inc vat)

i.e.
Sales for the quarter are £10,000+vat @ 20% = £12,000

The flat rate % is 8% less the 1% allowance = 7%

Flat scheme vat due = 7% of £12,000 = £840

Thanks, Bridget

 

[Bridget1968]

oops... not forgetting any other accountable income as mentioned in the replies.

 

[MrAnchovy]

The logic is that the flat rate is a compromise rate applied to the whole of a business's income, to make things simple.

Well yes, but the purpose is to arrive at an estimate for the amount of VAT payable, i.e. the total output tax minus the total input tax. Including exempt items in the turnover which you use to calculate the net amount of VAT proportionate to that turnover doesn't make it simpler and can only make the estimate less accurate.

 

[David Griffiths]

Well yes, but the purpose is to arrive at an estimate for the amount of VAT payable, i.e. the total output tax minus the total input tax. Including exempt items in the turnover which you use to calculate the net amount of VAT proportionate to that turnover doesn't make it simpler and can only make the estimate less accurate.

Not if the compromise rate is based on total income, including exempt items.