Supplier VAT - Flat Rate Scheme

[Clare@InTouch]

Reminds me that MyCo's next laptop purchase needs to hit £2k

Or you can add in a printer to take the whole package over that level, as long as it's on the same invoice

[silentbull]

"2. He will invoice me for 325 plus VAT whereas I will invoice my client 400 + VAT. I will need to pay ABC 325 plus 65 VAT for each invoice. By this, although my profit margin is 75 GBP i lose 65 by paying VAT which I can never claim back."

Ok, your output is 400 + 80 VAT = 480.

I do not know what your flat rate percentage is, but assume for example it is 16%. In this case 76.80 vat to be paid over to HMRC leaving you with 403.20.

Now, you receive an invoice for 325 + 65 vat = 390. So you profit in this scenario is 13.20.

"3. The contract is for 12 months . If i change back from Flat rate to normal one, I will end up paying 20% to government for the VAT that I am getting from client. So, I am really confused on what to do."

In this case you invoice 400 + 80 vat = 480.

You have to pay your supplier 325 + 65 vat = 390.

You have to pay vat of 80 against which you reclaim the input of 65 = 15 vat to be paid.

So in this case your profit is 75 (as you'd expect).

In terms of he agency type issue I just thought I would throw that into the mix. The question is whether you are supplying a worker or a service. I have no idea of the answer to that, but this may help you decide.

https://www.gov.uk/employment-agencies-and-businesses


As has been pointed out by Martin and Clare there could become an issue as to whether you could stay on the flat rate scheme anyway due to turnover restriction (even if you did want to).

Thanks all for the replies. My accountant mentioned that it will come under subcontractor category and will not come under Agency.Also, as you guys suggested, my accountant asked me to increase my margin or change the VAT scheme.

Thanks all! Still confused between subcontractors and Agency differences

[Littlebox Accounting]

As I am doing IT contracting through my company and am the Director, I have a requirement where I need to supply resources to my client.

I have the following clarification and request your assistance on this. I will use a vendor who provides IT resources. The vendor will invoice me while I invoice my client with some margin.

These are my clarification.

1. Can I use another IT contractor service and pay him using my company? Should i create him as supplier? Does I need to do anything special or register anything for this to be done via my company.

I do not see anything wrong with this. You could class this as sub contracting rather than one of your suppliers.

2. While paying the invoice bill to the vendor/supplier, I assume I need to pay 20% VAT to the supplier? If yes, can I reclaim it back since I am on Flat Rate

Unfortunately, on the flat rate scheme you are not able to claim any VAT back. You simply charge your clients 20% and pay back the set rate on your turnover, back to HMRC.

3. If i am unable to claim the VAT, what options do i have to reduce my loss since I will be losing 20% of my margin.[/QUOTE]

You could go back to normal VAT or cash accounting, otherwise there is no way around this on the Flat rate scheme. As VAT is an added tax people often get mixed up. You are actually only collecting tax from one party (your client) and paying to another party (HMRC). Therefore, because it is value added, you will not lose anything because the end consumer alway pays the tax i.e your client.

I hope this helps.