So how does flat rate vat work?

Obscurity

Fair enough, but it's not really obscure.

Take that [hypothetical] 6 monther overseas and then discover that you have to pay 10k in VAT to HMCE and have charged nil.>:

Re: Zero Rated T/O

ASB - the rules are unclear enough without clouding the issue with obscurity

Thank you

Zero Rated T/O

Considering the flat rate scheme is a very poor idea for anybody who is likely to get more than about 3% of their turnover from zero rated supplies. So if you are likely to be billing overseas tread carefully - you will be paying vat on zero rated turnover.

Also the 2k when you can reclaim is, I beleive, only for capital equipment. So if you subbed some work out or similar then you are still going to get stiffed for the input vat.

>newly registered for VAT so that should 12% you are paying

>what you meant by “first four vat returns under the scheme”.

Not strictly true unless you've just started trading in this year.
This is from memory but I'm sure it's correct. To clarify.

The zero vat came into existance from Jan this year. You can not back date.
The one percent discount is available if you are in your first year of trading i.e. your Ltd has not ever traded before. (This rules out most of us)

This means if you registered your Ltd 1st Oct 2003 and started trading at that time, you would not be able to get 4 vat returns but 3 under the extra 1 percent discount. (Only three because you can't back date before 1st Jan 2004 and because you reach your 1st year of trading by 30th Sept 2004 - assuming you do quarterly returns)

If you have been trading (>1 year) but not VAT registered but now decide to go zero rated then you would not qualify for 1 percent discount.

It's all pretty clear at the HM Custom & Excise site. This is all from memory so ask your accountant or check the site.

I think the usual rate for Computer contractors is 13% but it's not as good as it seems.......

It is 13% of the gross.....so 13% of 117.5% (the invoice and VAT), which really equates to 15.275% VAT.

You must also consider that it is no longer possible to claim VAT back on inputs such as accountancy fees and new computers. The only exception is if the purchase is over £2K.

This still saves me around £1K gross a year....

Buckstewrgkfs,
The 1% reduction is for businesses in their first year of VAT registration. Not the first year of operating the flat rate scheme. (wasn’t sure exactly what you meant by “first four vat returns under the scheme”).

yes 12% for the first year (first four vat returns under the scheme)...then 13% thereafter

"I've found out I only pay 13% (new company). So i charge 17.5 but only pay back 13% of the total. Its a winner....unless I'm missing something I'll make about 6k extra"

Why are you paying 13%? There is a 1% discount if you are newly registered for VAT so that should 12% you are paying. Please check with HM customs and Excise.

>But if you are a regular contractor you should be onto a winner

Ah, you have a lot to learn from Gordon ...

Remember the famous 0 percent corp tax ?
Everybody incorporated and it was good for a short time. Then just as husband/wives got their tax arrangements sorted, along came s660a. He'll get back more than he lost in the short time he allowed zero corp tax.

You can see it now. How long before flat rate for "genuine businesses" only and retrospective tax for those tax dodging scumb@g contractors ...
Spot the great big elephant trap ! (but milk it while you can)

Remember you can’t claim VAT back on any purchases you make. But if you are a regular contractor you should be onto a winner, yes.

I've found out I only pay 13% (new company). So i charge 17.5 but only pay back 13% of the total. Its a winner....unless I'm missing something I'll make about 6k extra.

No, you pay 14.5% (or whatever your rate is) of the invoice total (including VAT)

Example: You charge £1000 + VAT = £1175

You give HMCE 1175 * 14.5% = 170.37

If I only pay 14.5% to IR but i charge 17.5% to my customer......am I making 3% extra?