Vat Flat rate scheme

Vat Flat rate scheme

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I am trying to understand how it will work for a limited company, using a simple hypothetical example.

On the assumpion the rate applicable for the trade is 12%.

per the guidence, notes a valid vat invoice at the standard rate is still issued. Therefore if sales are £1000 than invoice issued is £1000+vat=£1175.

vat payable to C&E is £1175@12%= £141

Question, Am I correct

1. The sales accounting purposes is £1175 and not £1000 and

2 The vat paid £141 is expenses in the P&L account when paid.

Would appreciate if somebody could confirm the above treatement is Ok?

Any other issues to worry about?

Thanks

Martin

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By User deleted
17th Jan 2005 16:02

Consider sub-contractors
If the company uses sub-contractors to any great degree, the flat rate scheme can seriously erode its profits or even create a loss to the company on an individual sub-contractor's work.

For example, using a flat rate of 12%

Company charges client 15,000
+ VAT 2,625
17,625

Sub-contractor charges company 10,000
+ VAT 1,750
11,750

Under normal VAT accounting

Net income 15,000
Net expenditure 10,000
Profit 5,000

Under flat rate VAT accounting

Gross income 17,625
Less flat rate VAT 12% 2,115
Less gross expenditure 11,750

Profit 3,760

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By NeilW
12th Jan 2005 10:18

I don't think so
For bookkeeping purposes you account for invoice as normal for a VAT business, but account for expenses as though they were not registered.

When you pay the VAT at the end of the quarter at the relevant percentage then any VAT left over becomes additional profit (Input tax recovered).

That fits in the easiest with bookkeeping packages and doesn't artificially inflate turnover, plus if the percentage changes it doesn't alter the bookkeeping system.

Personally I think FRS actually complicates bookkeeping matters rather than simplifying things.

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By User deleted
12th Jan 2005 18:42

Flat Rate VAT
Don't forget that if Capital assets costing above a certain figure (£2k from memory) are bought, then you can still claim input tax on these !
So, look at this for VAT planning :-

Buy a computer for £1900 incl VAT = no VAT claim, so cost to you = £1900.

Buy a BETTER computer for £2100 incl VAT, so reclaim £313 VAT, so cost to you = £1787 !

However, when you come to sell the £2100 computer you have to pay some VAT back on it's proceeds.

The "simplified" FRS is anything but simple.
I've read booklet several times for good measure and found the scheme not suitable for many qualifying clients.
I think the booklet ran to 38 pages - why does a "simlified" scheme need 38 pages to explain it's rules ?
Answer = it's not as simple as you might be lead to believe !

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By theaardvark
13th Jan 2005 10:03

Correct
Your treatment is correct and is the treatment suggested by the Inland Revenue on their website (although I can't find the link at the moment).

Sales are recorded gross and the VAT Flat Rate Payment shown as an expense.

Purchases are entered gross unless, as stated below, they are assets on which you can recover VAT.

Regards

Paul Taylor
VATease - VAT Advice

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