They can be used to claim for things like the business costs of cars and associated costs of working from home. This can be done by Self-employed individuals or Partnerships with no companies as partners. What are flat rates expenses?įlat Rate Expenses are a predetermined amount of money that can be claimed as a tax relief. The first method is using Flat Rates for mileage and the second is using actual Expenses. Businesses operating with a relatively small profit margin will tend to see lower VAT liabilities under the traditional invoice based VAT scheme.Self-employed individuals and Partnerships with no companies as partners can choose between two methods when claiming vehicle expenses. In fact, flat rate VAT tends to only be beneficial to businesses that have a large profit margin. ConclusionĪs you can see, the flat rate scheme is not a “one size fits all” type of solution to save small businesses money. Increase the purchases to £1,600ĪBC Builders Limited would be liable to VAT of £280 under the standard scheme, but still liable to £342 under the flat rate scheme. But look what happens when you increase the purchases to £1,600. Therefore in this example the flat rate scheme would be better for ABC Builders Limited. Under the flat rate VAT scheme ABC Builders Limited would have a VAT liability of £342. Under the standard invoice based VAT scheme ABC Builders Limited would have a VAT liability of £380. Regardless of which scheme the company is operating under, the sales invoice will always look like this: They spent £1,100 in materials for the job (all costs are VAT exclusive). ABC Builders Limited invoices their customer for £3,000 of building services. The prescribed percentage given to them under the scheme would be 9.5%. ExampleĪBC Builders Limited is a company who offers general building and construction services. **Point to note** HMRC reduce your flat rate percentage by 1% in your first year of adopting the scheme. To see the full list you can check the HMRC website at General building or construction services A few of these are listed below:Ĭomputer and IT consultancy or data processingĮstate agency or property management services HMRC have predetermined the flat rate VAT percentages for each industry. This prescribed percentage is charged on the gross sales of the business, and this is all that is paid over to HMRC. In exchange for this, HMRC will only ask the business to pay over a prescribed percentage of VAT (which tends to be less than the standard 20%) based on what line of business they are in. The flat rate scheme still requires businesses to charge their customers VAT at the appropriate rate (the standard rate currently being 20%), but they are not allowed to claim back the VAT spent on their purchases. This article will give you the facts and provide you with example calculations so that you can make up your own mind.Īs explained in our “An overview of VAT” helpsheet, the traditional invoiced based VAT system allows businesses to charge VAT on their sales, deduct VAT from their purchases, and then pay over the remainder to HM Revenue & Customs on a quarterly basis. Over time there has been conflicting information published about whether the flat rate scheme is actually beneficial for small businesses or not. Flat rate VAT is just one of many schemes set up by the Government to make VAT easier for small businesses.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |