Flat Rate Tax

Discussion in 'Accounts & Finance' started by jasper123, Jul 1, 2012.

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  1. jasper123

    jasper123 UKBF Newcomer Free Member

    2 0
    Hi

    I am a self employed electrician and I have recently been approached by a company recommending that I register for flat rate tax.
    They have said that if I do so, I should be able to claim about £4k.

    My income is based on invoices for my labour from companys (about £25k pa) and I dont really have any expenses other than travel and subsistence.

    I this too good to be true ? What are the downsides ?

    Thanks for any replies which would be appreciated, or do you suggest that I get some accountancy advice ?
     
    Posted: Jul 1, 2012 By: jasper123 Member since: Jun 24, 2012
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  2. David Griffiths

    David Griffiths UKBF Legend Full Member - Verified Business

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    The only flat rate tax that we have is for VAT. It would be difficult to see how you could save £4k on your turnover

    I'd take independent advice
     
    Posted: Jul 1, 2012 By: David Griffiths Member since: Jun 21, 2008
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  3. Figurate

    Figurate UKBF Newcomer Free Member

    155 41
    I can't comment specifically on the £4k.


    This is all about the Flat Rate Scheme (FRS):
    http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm

    (some people make a small “profit” on the FRS, although obviously that isn’t the purpose of the scheme)

    But this is how the Flat Rate Scheme works, in general:
    Standard VAT scheme
    Sales £25,000+VAT = sales/output VAT of £5000
    Purchases £1500+VAT = purchase/input VAT of £300
    You would pay £5000-£300=£4700 to HMRC.


    Flat Rate scheme
    Sales £25000+VAT=£30000 gross turnover.
    Say your FRS is 14.5%*, you would then pay HMRC £4350

    So if your purchases were £1500+VAT, you would make a profit by being on the FRS
    However, if your purchases were, say, £4000+VAT, then under the FRS, you would make a small loss, because under the standard VAT scheme, you would only have had to pay £4200 to HMRC on that level of purchases.)

    (the “number crunching” under the FRS is also simpler than for standard VAT)

    *HMRC calculates an average percentage for each business sector,
    The list is here: http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm#5
     
    Posted: Jul 1, 2012 By: Figurate Member since: Aug 24, 2010
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