Flat rate VAT

[Ltd]

My ltd is registered for Flat Rate VAT. According to https://www.gov.uk/vat-flat-rate-scheme/vat-flat-rates the VAT for Management consultancy is 14%. The client paid 20%
Does it mean that it's perfectrly safe to pay 14% and keep remaining 6% in profit?

[Kenny@MyAccountantFriend]

Unfortunately not quite that simple.

You will have invoiced your client for say 100+ VAT (£120 gross)

You then apply the FRS percentage to the gross amount of £120 so will pay across £16.80 to HMRC keeping the £3.20 difference as profit for the company.

If you are in your first year of VAT registration you will receive a 1% discount on the FRS so will pay 13% instead of 14% as well.

[ujjain]

You bill your friend £150k.
Your friend bills you £150k.
You pay him £180k.
He pays you £180k.
You keep £13,5k.
He keeps £13,5k.
No VAT needs to be paid, because you have £30k vat incoming - £30k vat outgoing = £0.

I confused myself a little doing this calculation, so I might be wrong.

Update: I'm wrong, you only keep 4,5% of the incoming-outgoing VAT, would be 4,5% on 0 here.

[TheCyclingProgrammer]

You bill your friend £150k.
Your friend bills you £150k.
You pay him £180k.
He pays you £180k.
You keep £13,5k.
He keeps £13,5k.
No VAT needs to be paid, because you have £30k vat incoming - £30k vat outgoing = £0.

I confused myself a little doing this calculation, so I might be wrong.

Update: I'm wrong, you only keep 4,5% of the incoming-outgoing VAT, would be 4,5% on 0 here.

Er...no. Input VAT does not cancel out output VAT on the FRS, that's the whole point of it.

You would bill £150k + £30k VAT and pay £25.2k to HMRC (assuming 14% FRS percentage) and keep £4.8k which would be treated taxable income.

Your friend bills you the same amount but you can't reclaim the VAT so the cost to you is £180k.

Total income = £150k + £4.8k FRS surplus = £154.8k.
Total expense = £180k.

Resulting in an overall loss of £25.2k on the whole transaction.

If you had been on the standard VAT scheme then indeed the whole thing would be VAT neutral and the balance of the two transactions would be nil.

I hope you don't do your own accounts!

[TykeMerc]

Slight finesse to that though, for purchases you make totalling over £2k (think it's still £2k, I'm sure someone Accountanty can verify) then you can claim the VAT back as if you weren't on the FRS.

[Kenny@MyAccountantFriend]

Yea it is still 2k on capital purchases for which input vat can be reclaimed on the FRS.

[JB3000]

Yea it is still 2k on capital purchases for which input vat can be reclaimed on the FRS.

capital goods (not capital intangibles)

[TechJinx]

Yea it is still 2k on capital purchases for which input vat can be reclaimed on the FRS.

this is why my accountant encouraged me to boost the processor and memory on my new Macbook pro to get it over £2k and save myself some money

well - alright then.......

[morf]

this is why my accountant encouraged me to future proof my new Macbook pro to get it over £2k and save myself some money

well - alright then.......

FTFY