I'm not sure how the flat rate scheme would work with two categories of business but regardless of that issue, you would have to include your zero rated supplies in your flat rate turnover and pay the flat rate VAT on it.
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Looks like Cycler is right and Flat rate VAT is charged on all income whether it is exempt or not. That would take a big chunk out of any benefit.6.2 What must I include in my flat rate turnover?
Your flat rate turnover is all the supplies your business makes, including VAT. This means all of the following:
•the VAT inclusive sales and takings for standard rate, zero rate and reduced rate supplies
•the value of exempt income, such as any rent or lottery commission - these examples are not exhaustive and you can find out more about exempt income in Notice 700 The VAT Guide
•supplies of capital expenditure goods, unless they are supplies on which VAT has to be calculated outside the Flat Rate Scheme in accordance with paragraph 15.9
•the value of any despatches to other Member States of the EC if you are making intra EC supplies. For details see Notice 725 The Single Market
Note: as exempt and zero rate supplies are included in your flat rate turnover you apply the flat rate percentage to the exempt and zero rate turnover. You may pay more VAT by being on the scheme if these supplies are a larger proportion of your business turnover than the average for your trade sector.
I knew there would be a catch somewhere. Thanks guys.Comment
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Why not come off the flat rate scheme? How much profit do you actually make from being on it? (where profit = flat-rate surplus less input VAT that you would have reclaimed on the normal scheme).Originally posted by nato View PostComment
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At the moment I'm on 11% VAT rate as it is my first year so a loss of about £7k over the year. Think I will just get the accountant to work more and keep them separate. They are worth their weight in gold but I don't think the accountant could charge that much for a simple end of year tax return.Comment
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Interesting, do you mind me asking what you do? I'd have to be turning over close to quarter of a million a year to get close to £7k in flat rate surplus on 14.5%!Originally posted by nato View PostComment
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I'm an automotive design engineer working in Design so my math is probably out, but I figure that if I came off the flat rate I would lose the 9% I currently make on £70k. Is there another way to claim VAT?Comment
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If I read what you have outlined correctly, you are actually saving closer to £4,700 (which is still a lot, don't get me wrong).Originally posted by nato View Post
On the Flat Rate Scheme for VAT you pay your relevant percentage on the gross amount you actually invoice for. I.e. if you invoice for £70,000 excl. VAT, you would need to pay 11% on the £84,000 you would be charging inclusive of VAT.Comment
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you dont make 9%, it doesn't work like thatOriginally posted by nato View Post
assuming you're invoicing 70k net
you charge 20% vat = 14000, so 84000 gross
you pay 11% of your gross on to the taxman, 84000*0.11 = 9240
you keep what's left (14000-9240=4760)
so it's more like 6.8% of your net
i.e. even if your wife's accounts/business running cost £4759 you're still better off running them as separate businessesComment
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You don't keep 9%.Originally posted by nato View Post
If that £70k is gross then that would have included VAT charged of £11,666. If your flat rate is 11% then you would pay HMRC £7700 leaving you with a surplus of almost £4000.
That's still a pretty good amount and unless your input VAT costs are unusually high, most of that is likely pure profit.
If you were on the normal scheme you'd just reclaim the input VAT you pay in your costs.Comment
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Thanks guys for the clarification I will make sure my calcs work it out that way.
Considering the childminding turn over will rarely top £10k I think I will go the separate root as has been suggested.
CUK saves the poor contractor again
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