Flat Rate VS. Standard VAT (Running Facebook ads)

[Aivi]

Hi there,

I've recently crossed the threshold for VAT and I will register for it this month. I'm not entirely sure if I should pick the Flat Rate or Standard VAT. I would highly appreciate if you could look at the factors I'm considering and let me know your thoughts.

1. My business is quite new and the sales during Christmas were record high. If the sales keep growing I would make over 150k a year so I would not be eligible but there is also the possibility that they slow down and I would come in at around the 150k mark. Can I apply for the Flat Rate and if I outgrow it in my first year just switch to standard after he 230k?

2. Advertising (Facebook ads) does not charge VAT as they expect you to use the reverse charge procedure on your VAT return so I have added them on top of my revenue for calculating the threshold. I understand that I cannot claim back VAT with the Flat Rate so will I have to keep adding it on top on my revenue? How will it impact the VAT calculation?

My goal is to save as much VAT as possible during my growth phase.

 

[NicoJ]

You only pay flat rate VAT on your sales. Reverse charge is added to input & output so neutral payment.

You need to have a look at your costs to ascertain whether flat rate is better than standard. Do you have a lot of input vat to claim or are your costs mainly zero rated?

The answer to the first question is yes, I believe. You can apply if you consider your sales will be under £150k.

 

[Aivi]

You only pay flat rate VAT on your sales. Reverse charge is added to input & output so neutral payment.

You need to have a look at your costs to ascertain whether flat rate is better than standard. Do you have a lot of input vat to claim or are your costs mainly zero rated?

The answer to the first question is yes, I believe. You can apply if you consider your sales will be under £150k.

Thank you for clarifying that I only need to consider sales. If taken into account the 1% discount for registering whilst in the first year on a flat rate. And potential deductions I could claim with the standard vat I could save ~6k more on the flat rate compared to the standard one before I max out the 230k limit.

It is tricky with the sales projections due to insufficient data from past years. Plus the effect of covid. If the growth remains strong I would hit the 230k limit in April-May this year, but if not then it might be more than a year till I reach it.

Would HMRC have a problem if I apply for Flat Rate VAT and outgrow it before one year?

 

[NicoJ]

As long as you meet the criteria you will be fine. HMRC will write to you if they think that you are not eligible (usually by checking the net outputs on your submitted returns).

 

[lesvatadvice]

Para 6.4 in this link confirms how you should treat your purchases from Facebook: www.gov.uk/government/publications/vat-notice-733-flat-rate-scheme-for-small-businesses/vat-notice-733-flat-rate-scheme-for-small-businesses#section6