Hi People,
I have had a few quiries regarding the Flat Rate Scheme, so i thought id use an example to show the benefit for some who use the scheme.
The flat rate scheme allows you to calculate the amount of your VAT payment as a flat rate percentage of your vat inclusive turnover.
The percentage that you can use is decided according to the trade sector your business is in, which for IT contractors is 13%.
You will have to charge your clients 17.5% VAT on your net fees but the amount you pay to HM Customs is calculated on your VAT inclusive fees multiplied by your given sector percentage.
For example:
Your net fees - £10,000
VAT @ 17.5% - £1,750
Gross invoice amount - £11,750
Under the normal Vat arrangements you would then have to pay £1,750 to HM Customs.
If you use the flat rate scheme and had been given a sector percentage of 13% you would pay the following to HM Customs:
Gross invoiced amount * Sector percentage = £11,750 *13% = £1,527.50
SO......
Under the flat rate scheme you would therefore be better financially as you retain £222.50 of your output VAT in the business.
The scheme is open to all VAT registered business with an annual turnover (excluding VAT) of £150,000 or less.
Finally, in your first year of VAT registration you would be entitled to a 1% discount on your normal sector % making the benefit greater in your first year (i.e. in the example above, the rate to use would be 12%)
Hope it helps
Thanks,
DB3
I have had a few quiries regarding the Flat Rate Scheme, so i thought id use an example to show the benefit for some who use the scheme.
The flat rate scheme allows you to calculate the amount of your VAT payment as a flat rate percentage of your vat inclusive turnover.
The percentage that you can use is decided according to the trade sector your business is in, which for IT contractors is 13%.
You will have to charge your clients 17.5% VAT on your net fees but the amount you pay to HM Customs is calculated on your VAT inclusive fees multiplied by your given sector percentage.
For example:
Your net fees - £10,000
VAT @ 17.5% - £1,750
Gross invoice amount - £11,750
Under the normal Vat arrangements you would then have to pay £1,750 to HM Customs.
If you use the flat rate scheme and had been given a sector percentage of 13% you would pay the following to HM Customs:
Gross invoiced amount * Sector percentage = £11,750 *13% = £1,527.50
SO......
Under the flat rate scheme you would therefore be better financially as you retain £222.50 of your output VAT in the business.
The scheme is open to all VAT registered business with an annual turnover (excluding VAT) of £150,000 or less.
Finally, in your first year of VAT registration you would be entitled to a 1% discount on your normal sector % making the benefit greater in your first year (i.e. in the example above, the rate to use would be 12%)
Hope it helps
Thanks,
DB3
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