VAT Flat rate scheme - changes

[Rocketman]

Anyone who uses the VAT flat rate scheme should be aware that there will be changes from the 1st of April 2017.

If you are in the scheme and not aware of the changes you should get online to the HMRC documentation.

Bottom line is you may lose your current discount rate and be on the new 16.5% rate.

https://www.gov.uk/government/publi...-rate-scheme-technical-note#what-happens-next

https://www.gov.uk/government/publi...ice-733-flat-rate-scheme-for-small-businesses

 

[Windy Miller]

I have just dropped out of the flat rate scheme. It will mean a little more admin for me, but I intend doing less IT work, and more gates & railings, so it should mean more money in my account at the end of each quarter.

 

[Rocketman]

Windy I had considered dropping out myself if I was going to be in the new 16.5% bracket. But looking at it because I get a new version of Solidworks each year and as long as I get it on a disk I should be fine. Sounds like you did the right thing anyway as you will be buying a lot of materials for railings.

There is still grey areas, trying to get clarification at the second on whether things like Solidworks purchase can be split into the quarters or is it just applied to the quarter you bought it in.

 

[Windy Miller]

Hmmm not sure about the Solidworks thing. Ideally you'd be able to split it into quarters, but these things normally work in 'their' favour. It's probably quite a lot of money to buy, so is it classed as a capital purchase?

 

[Rocketman]

This is the trouble to me it would seem capital purchase but then on the relevant list extract below it clearly states software on a disk -
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Examples of relevant goods
This isn’t an exhaustive list:

• stationery and other office supplies to be used exclusively for the business
• gas and electricity used exclusively for your business
• fuel for a taxi owned by a taxi firm
• stock for a shop
• cleaning products to be used exclusively for the business
• hair products to use to provide hairdressing services
• standard software, provided on a disk

----------------------------------

At present this quarterly thing is the issue which my accountancy firm is trying to get clarification. Worse case I suppose is I would need to go to Solidworks and say I will have to split their payment into quarters instead of 30 days which they may refuse those terms who knows.

 

[Kent]

I just give it the wife. Vat comes out quarterly we get to keep thier money a while. But what's this about 16 1/2?

 

[Rocketman]

Kent are you on standard VAT scheme or the Flat rate VAT scheme?

The changes have no effect on the standard VAT scheme it carries on as normal.

 

[Kent]

Not a clue I charge 20 and I get 20 back. If I can charge less and get more back I am all ears on that

 

[Windy Miller]

This is the trouble to me it would seem capital purchase but then on the relevant list extract below it clearly states software on a disk -
----------------------------------
Examples of relevant goods
This isn’t an exhaustive list:

• stationery and other office supplies to be used exclusively for the business
• gas and electricity used exclusively for your business
• fuel for a taxi owned by a taxi firm
• stock for a shop
• cleaning products to be used exclusively for the business
• hair products to use to provide hairdressing services
• standard software, provided on a disk

----------------------------------

At present this quarterly thing is the issue which my accountancy firm is trying to get clarification. Worse case I suppose is I would need to go to Solidworks and say I will have to split their payment into quarters instead of 30 days which they may refuse those terms who knows.

Well that seems to suggest it's not a capital purchase.
Bummer.
How much are we talking about to buy it?

 

[Rocketman]

Not a clue I charge 20 and I get 20 back. If I can charge less and get more back I am all ears on that

Well yes and no Kent. It's swings and roundabouts. Flat rate scheme works great if you don't buy much in for your business and sell your services like a design consultant. Though there are special rates for florists, pubs etc

So basically you invoice with the 20% vat as normal but when you do the vat return it only has your invoice values (normally will get to that later). But here is the thing the value of VAT you have to declare on the VAT will have a discount applied to your sector - so 14.5% for mine. Now don't get too carried away with that 14.5% because how it's calculated is a bit of a stretch of the imagination so in reality the 14.5% gives you 2.6% free on your original invoice value ex VAT.

Important bit then You don't claim back any VAT other than your discount unless it falls into special criteria. Like it can't be used up in one year. Basically stuff like capital purchases - like a computer with standard software on a disk and a printer in one order for example.
It must be on one order. The value must be at least £2000 inc VAT

 

[Kent]

Well yes and no Kent. It's swings and roundabouts. Flat rate scheme works great if you don't buy much in for your business and sell your services like a design consultant. Though there are special rates for florists, pubs etc

So basically you invoice with the 20% vat as normal but when you do the vat return it only has your invoice values (normally will get to that later). But here is the thing the value of VAT you have to declare on the VAT will have a discount applied to your sector - so 14.5% for mine. Now don't get too carried away with that 14.5% because how it's calculated is a bit of a stretch of the imagination so in reality the 14.5% gives you 2.6% free on your original invoice value ex VAT.

Important bit then You don't claim back any VAT other than your discount unless it falls into special criteria. Like it can't be used up in one year. Basically stuff like capital purchases - like a computer with standard software on a disk and a printer in one order for example.
It must be on one order. The value must be at least £2000 inc VAT

OK so why might you do that, frankly there are legal ways to avoid hitting turnover thresholds

 

[knighty]

hadn't heard of the flat rate scheme before... from the .gov website

Example

You bill a customer for £1,000, adding VAT at 20% to make £1,200 in total.

You’re a caterer, so the VAT flat rate for your business is 12.5%.

Your flat rate payment will be 12.5% of £1,200, or £150.

it's a little odd that you pay a % of the invoice total (including the vat) instead of the total -vat


no good to me, but guess it must be handy if you buy in very little VAT rated goods, or just charge for services (consultant etc.)