Flat Rate Tax

[jasper123]

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 ?

 

[David Griffiths]

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

 

[Figurate]

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