Flat Rate VAT Scheme

[mogambo]

Hello i joined this forum as i thought it would be the best place to ask a question about the hmrc flat rate scheme.

I own a vehicle repair garage, to my understanding under the flat rate scheme i only have to pay a total of 8.5%, i still charge 20% vat as normal, i can not reclaim vat on purchases unless its over £2000, correct me if im wrong.

my questions ... the 8.5% is it 8.5% of turnover including cost of parts i supply? What if i make a profit on parts supplied? ill give a example below.

customer comes in for a clutch replacement....

parts cost me £60 including vat (£50 before vat). i charge labour of £120 including vat (£100 before vat). but i invoice customer £66 (£55 before vat) making a profit of £5 on parts.
invoice would like below just to make them numbers make sense

Labour
£100
SVAT
£20
TOTAL
£120

Parts
£55
VAT
£11
TOTAL
£66

TOTAL
£186

Do i owe 8.5% of 186? or 8.5% of my labour including vat plus my profit on parts including vat (120 + 6)?

thank you for your time.

 

[David Griffiths]

8.5% of £186 - your total VAT inclusive turnover.

 

[Paul_Rosser]

i can not reclaim vat on purchases unless its over £2000, correct me if im wrong.

.

Under the flat rate scheme you can only reclaim the VAT on capital purchases with an invoice total of £2,000 (incl VAT) or more.

That doesn't mean each item has to cost £2,000 but they have to be shown on one invoice.

So for example you could buy 4 capital items costing £600 each and provided they are all listed on the same invoice you could reclaim back the VAT.

There are of course some other rules which can be found here -

http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm#8

 

[simonr]

I know you'll have to make some assumptions about how much you're going to earn and how much you're going to spend on various things, but don't forget to do a quick spreadsheet to make sure you're taking the best option

• Not VAT registered at all (subject to the legal thresholds etc)
• Flat rate VAT
• Normal VAT

Each has pros and cons. For me, the biggest advantage of the flat rates scheme is the reduced hassle and paperwork!

S

 

[MyAccountantOnline]

I know you'll have to make some assumptions about how much you're going to earn and how much you're going to spend on various things, but don't forget to do a quick spreadsheet to make sure you're taking the best option

• Not VAT registered at all (subject to the legal thresholds etc)
• Flat rate VAT
• Normal VAT

Each has pros and cons. For me, the biggest advantage of the flat rates scheme is the reduced hassle and paperwork!

S

I agree entirely with the first part of your post, but not the last.

If you are keeping complete and accurate records and use a decent accounting/bookkeeping package I truly don't really see how the Flat Rate scheme reduces admin.

 

[HobbyMounts]

Am I right in thinking the flat rate scheme is most suitable for a business offering a service rather than products?

The reason I say this is because of not being able to claim VAT back on purchases.

Is that correct?

 

[MyAccountantOnline]

Am I right in thinking the flat rate scheme is most suitable for a business offering a service rather than products?

The reason I say this is because of not being able to claim VAT back on purchases.

Is that correct?

Yes that's often the case but you should always do the calculations to be sure.

 

[David Griffiths]

Am I right in thinking the flat rate scheme is most suitable for a business offering a service rather than products?

The reason I say this is because of not being able to claim VAT back on purchases.

Is that correct?

You can't generalise by industry sector, If a service business is on the flat rate, the percentage will be higher because of the low input VAT claim.

The percentages will have been set by HMRC on the basis of average returns across a trade sector. If your input tax claim would be lower than average, then the flat rate would probably be better. On the other hand, if your claim would be higher than average, then it would be worse.

So it's not the type of business, but where you stand in relation of other similar businesses.

And of course if more people join because it's in their favour, HMRC will probably edge the flat rate up to reflect a true average!

 

[simonr]

If you are keeping complete and accurate records and use a decent accounting/bookkeeping package

I think that answers the question!