Making Money From Flat Rate VAT Scheme?

[PJB Marketing]

Quick question just to make sure I have understood everything I've read correctly.....

On the flat rate VAT scheme you charge your clients 20% VAT and then pay HMRC a percentage set by them - in the case of myself as a marketing consultant this would be 14%.

Therefore if you have hardly any expenses or outgoings as I do, it's potentially advantageous even to voluntarily register since you can make money from the VAT you charge?

Is this correct? If so, the only downside I see since my clients are used to paying VAT anyway is the extra paperwork but even then I use FreeAgent which looks like it will simplify things anyway.

 

[kevin.doran]

All correct.

It's 14% of your gross sales (including VAT) though not net. Many think they'll 'make' a straight 6% which isn't quite true.

 

[PJB Marketing]

Perfect thanks Kevin.

Yep so if I invoice say £70,000 + Vat (20%) = £84,000

VAT payable to HMRC is 14% of £84,000 = £11,760

My profit on VAT = £2,240

Sound good to me - wish I had looked in to it earlier!!

 

[kevin.doran]

Are you already VAT reg?

 

[PJB Marketing]

No - just signed up today - will be registered from the end of the month.

 

[David Griffiths]

Just to dampen things a bit, the £2,240 "profit" is subject to income tax/corporation tax.

Still leaves you in pocket though

 

[PJB Marketing]

Yep like you say though, still better off than I was not being VAT registered!

 

[kevin.doran]

No - just signed up today - will be registered from the end of the month.

Have you already completed the online form? I do believe you may have been able to backdate your registration if not (would mean you needing to reissue historic sales invoices but potentially worth it so long as the recipients in questions wouldn't mind).

 

[UK Contractor Accountant]

in the case of myself as a marketing consultant this would be 14%.

In your case I would call myself an 'Advertising Consultant' which is a 11% Flat Rate!!!!!!!

 

[PJB Marketing]

Already applied online. To be honest I dont mind that as it would have been a paid to ask my clients if I could reissue with VAT. Advertising consultant would have been better you are right but too late now.

 

[UK Contractor Accountant]

With the 1% discount in the first year of registration that equates to a profit of £5.6K based on your figures - I have just made you £3.36K extra (subject to tax of course)

 

[Ian J]

Sound good to me - wish I had looked in to it earlier!!

I've been on the flat rate system for quite a few years. Good innit

 

[UK Contractor Accountant]

Already applied online. To be honest I dont mind that as it would have been a paid to ask my clients if I could reissue with VAT. Advertising consultant would have been better you are right but too late now.

You can change your frs % I believe

 

[PJB Marketing]

Ok thanks - Ill look in to changing it then.

 

[dezzy]

Sorry if I should have started a new thread to ask this question, but it's related to VAT and the FRS.

I'm going to be leasing a business very soon and I am going to register for VAT and the FRS, but am I able to reclaim VAT paid before completion if I'm on the FRS. The two biggest examples are fees for a traning course related to the business and my solicitor's fees.

I know you can backdate but my understanding is that as these are both under £2,000 I won't be able to claim separately for these on the FRS - but I would if I register for VAT normally.

Thanks

 

[David Griffiths]

You can claim in the normal way for VAT incurred prior to registration.

Para 7.6 at this link

 

[TheCyclingProgrammer]

The difference between your FRS VAT and the VAT you charge is turnover, not profit. Your "profit" from the scheme, if you want to analyse it correctly, is the above surplus less any input VAT as in most cases input VAT cannot be reclaimed on the FRS and therefore is an expense.

Obviously this is no different to not being VAT registered so you could think of it as all profit I suppose but I don't see it that way; compared to the standard scheme, input VAT is a cost of being on the FRS. It's worth keeping an eye on your true profit from the scheme as it is perfectly possible to make a net loss from the scheme if your input VAT costs are high.

Any profit you do make from the scheme is of course, taxable.

 

[Ian J]

It's worth keeping an eye on your true profit from the scheme as it is perfectly possible to make a net loss from the scheme if your input VAT costs are high..

One would hope that anyone with exceptionally high input Vat wouldn't be in the FRS scheme anyway as it's not always suitable for every business model

 

[dezzy]

Thank You David

 

[TheCyclingProgrammer]

One would hope that anyone with exceptionally high input Vat wouldn't be in the FRS scheme anyway as it's not always suitable for every business model

No, but business models can change so the FRS can go from being suitable to not.

 

[PJB Marketing]

The difference between your FRS VAT and the VAT you charge is turnover, not profit. Your "profit" from the scheme, if you want to analyse it correctly, is the above surplus less any input VAT as in most cases input VAT cannot be reclaimed on the FRS and therefore is an expense.

Obviously this is no different to not being VAT registered so you could think of it as all profit I suppose but I don't see it that way; compared to the standard scheme, input VAT is a cost of being on the FRS. It's worth keeping an eye on your true profit from the scheme as it is perfectly possible to make a net loss from the scheme if your input VAT costs are high.

Any profit you do make from the scheme is of course, taxable.

Yep understand all that and I am comparing to my current situation as non-vat registered. My expenses are extremely low (litterally a couple of hundred or so a month) and so my situation would have to change dramatically for FRS to result in anything but a tidy little additional profit.

 

[k100danny]

I would say most of the people on the FRS benefit from being on it and if they don't then they should be told this by their accountant. We are better off to the tune of around 5k a year on the FRS.

In regards to reclaiming vat prior to registration as david said was ok I have been told this is NOT the case. only large assets can have the vat reclaimed, if i could have reclaimed vat on purchases prior to registration and still held in stock I would have got around 3k vat back

 

[kevin.doran]

Going off on a tangent slightly but clear Books have recently implemented a fantastic tool whereby you can easily compare standard to FRS.

 

[David Griffiths]

In regards to reclaiming vat prior to registration as david said was ok I have been told this is NOT the case. only large assets can have the vat reclaimed, if i could have reclaimed vat on purchases prior to registration and still held in stock I would have got around 3k vat back

Well, you have been told wrongly. If you click on the link that I provided it quite clearly states that you can claim VAT on pre-registration purchases in the normal way

 

[Red Wood]

Can you still claim back the full 20% on purchases?