Expenses, Corp Tax and Dividends

[PerfectStorm]

Anyone know what the cutoff point is where you should stop using FRS and instead reclaim full VAT? Is there a certain percentage of income where it makes sense to stop using the Flat Rate Scheme?

[jamesbrown]

Anyone know what the cutoff point is where you should stop using FRS and instead reclaim full VAT? Is there a certain percentage of income where it makes sense to stop using the Flat Rate Scheme?

There's no simple answer, because it depends on the nature of the expenses (e.g. VAT on capital expenses > 2k can be reclaimed under the FRS), among other things (e.g. supplies outside of the scope of VAT are not included in the FRS turnover). However, you can certainly do a back-of-the-envelope calculation that is relevant for your circumstances, based on your historical turnover/expenses in recent years. In the vast majority of cases, unless you regularly purchase VATable goods/services, the differential earned on the FRS turnover will be higher, i.e. the FRS will be worthwhile.

[TheFaQQer]

Anyone know what the cutoff point is where you should stop using FRS and instead reclaim full VAT? Is there a certain percentage of income where it makes sense to stop using the Flat Rate Scheme?

If you are using FRS to "make" money, then you'd need to analyse the kinds of expenses you have and whether they incur VAT or not, and then compare those against the FRS "profit".

If you are using FRS to save on your admin time, which is what it was mainly intended for, then it's irrelevant.

[jamesbrown]

If you are using FRS to "make" money, then you'd need to analyse the kinds of expenses you have and whether they incur VAT or not, and then compare those against the FRS "profit".

If you are using FRS to save on your admin time, which is what it was mainly intended for, then it's irrelevant.

The latter is definitely worth mentioning but, if you have an accountant, it's muted to a large degree (yes, you do to have to review returns prior to submission...). Basically, for the type of businesses we run, the FRS is pretty much a no-brainer except in unusual circumstances, such as having 100% of your invoicing outside of the scope of VAT (while also incurring VATable expenses).

[d000hg]

Anyone know what the cutoff point is where you should stop using FRS and instead reclaim full VAT? Is there a certain percentage of income where it makes sense to stop using the Flat Rate Scheme?

If you are using FRS to "make" money, then you'd need to analyse the kinds of expenses you have and whether they incur VAT or not, and then compare those against the FRS "profit".

By my calculation, FRS increases your effective day/hour rate by 2.6%. E.g if your (PRE-VAT) daily rate is £300 and you work a typical 20-day month, you bill £6000 + VAT and you make a FRS profit of £156.

As already stated, you'd have to work out how much your expenses are, to figure out where it stops being profitable.

[TheCyclingProgrammer]

Anyone know what the cutoff point is where you should stop using FRS and instead reclaim full VAT? Is there a certain percentage of income where it makes sense to stop using the Flat Rate Scheme?

The simplest thing you can do is work out what your FRS surplus is and what your input VAT was (plus perhaps any losses made on re-billing expenses at net cost) and seeing how they balance out. The vast majority of contractors and freelancers should make a reasonable profit from the scheme.

Another thing that can have a big effect is the nature of your supplies - if you make a lot of zero-rated or exempt supplies then these will still be included in your FRS turnover so it could work out at a loss for you quite quickly.

[psychocandy]

I am attempting to learn a lot, hence why I am here, reading books and speaking to accountant. Waiting for my accountant to get back to me so I sought some more opinion from others. Learning what I can in between working 84 hour weeks but your concern is appreciated.

If you were with NW they would have got back to you same day.

Free month then Craig ??? ;-)