VAT Payments on Flat Rate

KaHn · 16 Apr 2014 at 14:23

Gents,

As I know a few are contractors here and such, just wondering how you find paying VAT at the 14.5% rate on your revenue (inclusive of VAT).

As I worked I see it you have the following calculation

Invoice = £10000
VAT @ 20% = £2000

Revenue = £12000

VAT paid to the VAT man = £12000 x 14.5% = £1740 which is 87% of the VAT paid, not the 14.5/20=0.725 as it would seem sensible in my head.

Anyone enlighten me more than the HRMC website which has no real explanation on their website.

Cheers,

KaHn

redeye_uk · 16 Apr 2014 at 14:27

A company pays VAT (14.5% in this case) on sales. Sales include invoices AND any VAT (20%) charged to your clients.

The flat rate is designed to make VAT payments 'simple' for companies with a small turnover

Yes you get a surplus from being on the flat rate. You can also claim VAT back on a single purchase over £2000

Django x2 · 16 Apr 2014 at 14:36

Simples:

Flat Rate Scheme Calculation

Total Billings £50,000
Output VAT 20% £10,000
Total invoiced £60,000
Total payable to HMRC at 14.5% of T/O £8,700

KaHn · 16 Apr 2014 at 14:43

Django x2 said:
Simples:

Flat Rate Scheme Calculation

Total Billings £50,000
Output VAT 20% £10,000
Total invoiced £60,000
Total payable to HMRC at 14.5% of T/O £8,700

Yes I get that is the calculation but if you are paying VAT at 14.5% I would assume it was the amount 50000 x 14.5% because in reality from the calculation above you pay 87% of your VAT to the VAT man and not 14.5% as stated?

Just don't get where the maths add up.

KaHn

cheesyboy · 16 Apr 2014 at 14:43

KaHn said:
VAT paid to the VAT man = £12000 x 14.5% = £1740 which is 87% of the VAT paid, not the 14.5/20=0.725 as it would seem sensible in my head.

the calculation is;
14.5 / (20/120) = 87%

The 20% rate is 20% of the NET amount invoiced (so 20% of £10,000 in your example). Flat rate VAT calculates on the GROSS amount invoiced (14.5% of £12,000)

KaHn · 16 Apr 2014 at 14:49

cheesyboy said:
the calculation is;
14.5 / (20/120) = 87%

The 20% rate is 20% of the NET amount invoiced (so 20% of £10,000 in your example). Flat rate VAT calculates on the GROSS amount invoiced (14.5% of £12,000)

Yes I get that, but why not call it the 17.4% (20% x 0.87) rate scheme instead of 14.5%?

KaHn

redeye_uk · 16 Apr 2014 at 14:55

Because VAT can be reclaimed on purchases and other inputs (£2000 single purchase for example).

cheesyboy · 16 Apr 2014 at 14:59

KaHn said:
Yes I get that, but why not call it the 17.4% (20% x 0.87) rate scheme instead of 14.5%?

KaHn

Because this is simpler (this is aimed at small businesses remember). Just apply the % to the cash you expect to be paid, without having to adjust for the 20% VAT on the top.

You can even use cash accounting so that you just calculate your 14.5% against payments received, rather than calculating on invoices raised.

Catanonia · 16 Apr 2014 at 15:48

Just gone onto flat VAT rate myself.

Much simplier and will give me back about £3k a year rather than full blown VAT.

Remember the > 2k rule as well for larger purchases.

Django x2 · 16 Apr 2014 at 16:18

Savings so far have been over £2k for me since September. Pure Win

Regy53 · 16 Apr 2014 at 17:14

never even heard of this. Im confused.

you charge 20% but pay back less?

Edit, just read up on it, turnover less than 150k

zegna · 16 Apr 2014 at 18:28

Also you get a 1% 'discount' in the first year

Jokester · 16 Apr 2014 at 18:38

It's to encourage small traders to pay VAT by effectively paying them to collect it.

It's nice. Reduces paperwork as well. I also do the annual accounting so I only pay an average each month then only do a final adjustment payment (or refund) at the end of the year.