I have a client a Freelance education consultant to the MOD. She is well over the limit for VAT and registerd normaly, her collegues have registerd for the Flat Rate VAT (12.50 percent),she is being presurised into re-regeristing using the flat rate scheme,her expenses vary and sometimes are over 4.5 percent of her normal return
Roy Waller
Replies (5)
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......am I missing something here !!??
Surely a simple matter of doing the sums?
Some situations work really well, some are really bad news, and some are neither fish nor fowl.
If clear sustainable gain, go for it.
If clear recurring loss, stick with standard scheme.
If it's not clear cut, go with best projections / analysis.
By the way, I find it usually best with start-ups to go with standard scheme ab initio if reasonable amount of upfront expenditure (but less than £2k capex per item) then switch to FRS (assuming sums work).
Notice 733 needs studying
For a "simplified" scheme I found it disappointing that the scheme needed an explanatory booklet close on 40 pages long !
The "devil is in the detail" and the detail that might easily be overlooked, but could be quite pertinent includes the following points to watch :-
<> Normally zero-rated or VAT-exempt income is charged to the flat rate - so a business with a high proportion of such income could be disadvantaged
<> The rules for reclaiming VAT on capital expenditure
Notice 733 can be accessed online as follows :-
<> One other point I never seen commented on : as the scheme is meant to be "revenue neutral" for HMC&R, HMC&R indicate that they can evict you from the scheme for that coverall reason "to protect the public revenue". I took this to mean that if the scheme proved really worthwhile for a trader, then HMC&R could remove such a trader from the scheme. However I've never heard of anyone being forced out of the scheme. Having said that, I've only seen 4 or 5 clients in the scheme.
Not all it is cracked up to be
I was impressed by the flat rate scheme - at first. But I've run several comparisons and haven't found a single case where the taxpayer would be better off - other than saving a bit of time.
Roy's client is an Education consultant. Are her outputs exempt? If so she would be seriously disadvantaged through flat rate.
Check the category
I have found that the Flat Rate Scheme works extremely well where a client is incurring most of its costs from non VAT registered suppliers, e.g. cleaning company subcontracting out a number of contracts to smaller non VAT registered cleaners.
The other main winners are those that manage to fall outside of any of the listed categories published by HMRC, therefore having to be placed in the category "other business activities not listed elsewhere" which carries a flat rate of 10%. A couple of clients have made savings of about £4k per year doing this. Word of warning, HMRC will not rubberstamp your category at time of application, so you have to be definite of the category that you fall in!
Depends
Although HMRC say the Flat Rate Schemes benefits are reduced admin (which is true) i is likely that only people who will be at least as well off under the scheme will register. Based on info you have given it is very difficult to judge whether or not she will be better off. If you want to give exact turnover and vatable expense details then I will be able to advise u further.