VAT Question within flat rate scheme

Hey folks, is it correct to say that VAT is paid on the total gross sales figures including that of VAT if your a member of flat rate scheme like me?

For example, if I do a piece of work and charge £100 +£17.50 VAT, the amount I pay back to HMRC is 10.5% of the £117.50 = £12.33

I thought it would be £10.50 I was due, but not so says my Accountant.

help appreciated.
 

Mr_Wistles

Distinguished Member
I have always calculated the way you have done (different rate but same principal).

Been on it four years and my vat account has never been short.
 

imightbewrong

Distinguished Member
Hey folks, is it correct to say that VAT is paid on the total gross sales figures including that of VAT if your a member of flat rate scheme like me?

For example, if I do a piece of work and charge £100 +£17.50 VAT, the amount I pay back to HMRC is 10.5% of the £117.50 = £12.33

I thought it would be £10.50 I was due, but not so says my Accountant.

help appreciated.
Charge 100 quid
Add on 17.5% VAT = £17.50
Pay HMRC 10.5% = £10.50
Keep the difference = £7 :thumbsup: (and then pay corporation tax on it :thumbsdow)

Is your accountant saying £12.33? That doesn't sound at all right - to me - and is not how I'm filling in my VAT return.
 
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Mr_Wistles

Distinguished Member
Charge 100 quid
Add on 17.5% VAT = £17.50
Pay HMRC 10.5% = £10.50
Keep the difference = £7 :thumbsup: (and then pay corporation tax on it :thumbsdow)

Is your accountant saying £12.33? That doesn't sound at all right - to me - and is not how I'm filling in my VAT return.
As always, Imightbewrong is right!
 

hufartd

Active Member
If you pay over vat on the " including vat amount" then it's £12.33 simples
£100 is the ex VAT amount.
 

imightbewrong

Distinguished Member

Anthony-Howard

Well-known Member
According to HMRC Im in the right.

HMRC

Dont understand hufrtd post sorry.
I am not sure that you are. If I use the link that you provided and the figures that you have given it seems to show that your accountant is correct and that you are not.


4. The Summary

THE FLAT RATE SCHEME READY RECKONER CALCULATION

Earlier you estimated your total turnover as: £117.50

To calculate the VAT to pay, multiply this by the flat rate for your sector.

Earlier you selected Any other activity that is not listed elsewhere as your trade sector. The flat rate for that sector is 10.5%. Therefore:

ESTIMATED VAT PAYABLE USING THE FLAT RATE SCHEME

Using the flat rate scheme the VAT payable next year would be £12.34

ESTIMATED VAT PAYABLE USING NORMAL ACCOUNTING

On the basis of your estimates, the VAT payable in the next year wrill be: £17.50


It sounds a little strange but if you think about it calculating VAT the way you and imightbewrong have described will almost always, if not always, be beneficial to a business and result in a significant loss of tax revenue. Flat rate VAT is about making things easier for businesses not for taking money out of the revenue and saving people some money because the inland revenue are nice chaps (If only). The tax man gets a nice saving in administration costs, as do businesses, and no real world loss of tax revenue as a result. Remember that you can't claim back VAT whilst in the flat rate scheme so depending on your business you won't always be better off.

I wasn't sure at first but have checked with HMRC, two accountants, a VAT accountant and two friends who worked for the inland revenue, all of whom have agreed with the online calculator and your accountant.

Based on my experience you need a good accountant that you can trust and I wonder if this asking this question in a forum means that you don't quite trust the advice that your accountant has given you (Even if they are correct). Since you are probably paying them a pretty penny for their professional advice it might be worth while re-evaluating who you use for accountancy services.

Cheers,

Tony.
 
hmmm starting to sway on this now....THE VAT Ready Reckoner states

VAT INCLUSIVE TURNOVER
ESTIMATE your turnover for the next year. This is all the income you expect to receive from your business. Include business income from sales which are standard rated, zero rated, reduced rate or exempt from VAT.
By definition, it looks like my turnover includes VAT Accrued therefore i should be paying VAT on the total amount received.

Happy for more comments.
 

imightbewrong

Distinguished Member
You don't pay VAT on VAT.

This bit

HMRC said:
Include business income from sales which are standard rated, zero rated, reduced rate or exempt from VAT.
just means include the total value of all sales invoices, no matter what type of VAT they fall under - it does not mean include the VAT amounts from these invoices.

FRS VAT is really simple - charge one rate on the ex-VAT invoice - pay a lower rate on the ex-VAT invoice - the rest is profit.
 

imightbewrong

Distinguished Member
calculating VAT the way you and imightbewrong have described will almost always, if not always, be beneficial to a business and result in a significant loss of tax revenue.
But that's the whole point of it! Think about it - if I send it a pile of VAT paperwork, and itemise all the 100s (potentially) of VAT expenses I have, some guy/gal at HMRC has to go through and check all of that and when they audit me it is very time consuming. So instead of that they say 'to make it simple for everyone, you can't claim VAT back on your purchases, but you can keep 25% of the VAT you charge'. The amount of paperwork (for us and them) and man hours (for us and them) that saves is potentially huge, so it's worth it for them. Plus it encourages people to become VAT registered, who might not otherwise, which means extra free £££ for HMRC.
 
You don't pay VAT on VAT.

This bit



just means include the total value of all sales invoices, no matter what type of VAT they fall under - it does not mean include the VAT amounts from these invoices.

FRS VAT is really simple - charge one rate on the ex-VAT invoice - pay a lower rate on the ex-VAT invoice - the rest is profit.
Yeah why would you pay VAT on VAT? Thats stupid.

For clarity Imightbewrong. If you earned £3300 gross, with 15% VAT on top £495.

If your rate of flat rate was 10.5%, what would you expect to pay back?
 

imightbewrong

Distinguished Member
Earlier you estimated your total turnover as: £117.50
Sorry, but you are putting the wrong number into the calculator, based on £100 invoiced ex VAT
 

imightbewrong

Distinguished Member
Yeah why would you pay VAT on VAT? Thats stupid.

For clarity Imightbewrong. If you earned £3300 gross, with 15% VAT on top £495.

If your rate of flat rate was 10.5%, what would you expect to pay back?
Okay one last time - look nothing up my sleeves <shows sleeves> ;)

Invoice 3300 ex VAT
Charge VAT @ 15% = £495
Pay VAT @ 10.5% = £346.5
Go to the pub with profit = £148.5, after setting aside corp tax = £31 ish
 
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Okay one last time - look nothing up my sleeves <shows sleeves> ;)

Invoice 3300 ex VAT
Charge VAT @ 15% = £495
Pay VAT @ 10.5% = £346.5
Go to the pub with profit = £148.5, after setting aside corp tax = £31 ish
I concur with you....my accountant is not concurring. I require more concurrence.:D
 

imightbewrong

Distinguished Member
Hold the front page - imightbewrong might be wrong - actually you might apply the FRS rate to the gross amount - hmmm
 
£3300 is the gross amount in my opinion. The gross amount shouldnt include VAT, its the basis of calculating VAT. The Value = £3300 added Tax £495. No?
 

imightbewrong

Distinguished Member
looks like iamwrong - hey ho - had to happen some time.

So:

Invoice £3300
Charge VAT @ 15% = £495 -> total invoice = £3,795
Pay FRS VAT @ 10.5% on invoice total = £398
Profit = £96.50, less corp. tax

Aplogies to all who were right - I added some unnecessary confusion to the thread, on a topic I called simple :rotfl:
 
looks like iamwrong - hey ho - had to happen some time.

So:

Invoice £3300
Charge VAT @ 15% = £495 -> total invoice = £3,795
Pay FRS VAT @ 10.5% on invoice total = £398
Profit = £96.50, less corp. tax

Aplogies to all who were right - I added some unnecessary confusion to the thread, on a topic I called simple :rotfl:
:eek:

Whats changed your mind mate? I think our way of calculating it is far more efficient and profitable? :D
 

imightbewrong

Distinguished Member
Indeedy - but I did a bit of reading around and I think it is charged on gross - looked on a couple of contract-related websites and they use the gross-calculations.

I've just sent my VAT calculations off to my accountant (for my first return) - should be a good test of my accountant to see if he comes back with my mistake.

So yes, it means 33% less FRS profit, but I'm afraid the other way is right. Unless I am double wrong ;)
 
I guess thats why they say that if your business earns ~£80k - £100k the FRS scheme is for you, but anything above that it becomes counter productive, presumably because you aint making anything out of it.

Cheers for help guys, thats my VAT sorted for this quarter. Now onto my PAYE :(
 

Ultima

Well-known Member
looks like iamwrong - hey ho - had to happen some time.

So:

Invoice £3300
Charge VAT @ 15% = £495 -> total invoice = £3,795
Pay FRS VAT @ 10.5% on invoice total = £398 Correct
Profit = £96.50, less corp. tax

Aplogies to all who were right - I added some unnecessary confusion to the thread, on a topic I called simple :rotfl:
Hooray, you got there in the end.:thumbsup:
 

Ultima

Well-known Member
I've been laughing my head off at this thread, some great posts.......just reminds me of when my clients ring and say "a mate down the pub said.........":rolleyes:

:rotfl:
 

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