Reply to: Handling reclaimed VAT

[TheCyclingProgrammer]

One of aims of the flat rate scheme is that you don't have to account for VAT on every little thing you buy. So it's likely that if you have £300 left you have brought services i.e. business mobile phone contract, business mobile broadband or goods i.e. external hard discs, pens that have VAT on them. What's left over after you have paid all these expenses is profit which you pay corporation tax on.

All the information is here - HMRC Flat Rate Scheme For VAT

Yes, I see a lot of people mistakenly assume all of the flat-rate surprlus is clear profit (some consider moving onto it for this reason) but you have to remember that the surplus is supposed to cover the (presumably small) amount of input VAT you've paid on expenses. If it more than covers it (which it will for some) then the remainder is definitely profit; if it doesn't cover it (i.e. you have spent more on input VAT than you have in flat-rate surplus) then you need to get off the FRS!

[SueEllen]

Hi,

What if I am on flat scheme? I charge sales 20% VAT, and hand to HMRC 14.5% of Sales (VAT inclusive). Say I have 300 pound left in my company account. Is it income? Should I pay corporate tax against it?

One of aims of the flat rate scheme is that you don't have to account for VAT on every little thing you buy. So it's likely that if you have £300 left you have brought services i.e. business mobile phone contract, business mobile broadband or goods i.e. external hard discs, pens that have VAT on them. What's left over after you have paid all these expenses is profit which you pay corporation tax on.

All the information is here - HMRC Flat Rate Scheme For VAT

[stek]

Gawd is everyone soo stupid - do people really not understand this?

Actually I don't understand it, where has the 400 quid gone? Does that mean there could be unlimited 400 quids?

[sy8111]

Hi,

What if I am on flat scheme? I charge sales 20% VAT, and hand to HMRC 14.5% of Sales (VAT inclusive). Say I have 300 pound left in my company account. Is it income? Should I pay corporate tax against it?

The £400 goes towards reducing your original expense in the company. e.g. if you bought a company computer for £2,400 inc. VAT you would reclaim the £400 as mentioned from the VAT man. This £400 input VAT would then be offset against the cost of the computer so that ultimately the cost of the equipment to the company would be £2,000 (£2,400 - £400).

Hope this helps.

Yep, makes sense,

[TheCyclingProgrammer]

Confused.

According to my figures, my 2000 in sales VAT is remitted to HMRC minus the 400 in input VAT. So what happened to the 400 collected that wasn't given to HMRC ?????? where did it go and how is it treated ? the 2000 wasn't mine to begin with until the nett amount is calculated...

You've already spent the £400 - on input VAT!

[Craig@Clarity]

The £400 goes towards reducing your original expense in the company. e.g. if you bought a company computer for £2,400 inc. VAT you would reclaim the £400 as mentioned from the VAT man. This £400 input VAT would then be offset against the cost of the computer so that ultimately the cost of the equipment to the company would be £2,000 (£2,400 - £400).

Hope this helps.

I know I was giving you the technical answer. The reality is what you've paid in the example is correct (£1,600) but technically its the process of paying over the Output and reclaiming the Input, thus only actually handing over the difference between the Output and Input. You haven't actually gained an extra £400.

Confused.

According to my figures, my 2000 in sales VAT is remitted to HMRC minus the 400 in input VAT. So what happened to the 400 collected that wasn't given to HMRC ?????? where did it go and how is it treated ? the 2000 wasn't mine to begin with until the nett amount is calculated...

[Craig@Clarity]

Err, No.....only 1600 was paid........2000 was billed and collected in sales....

I know I was giving you the technical answer. The reality is what you've paid in the example is correct (£1,600) but technically its the process of paying over the Output and reclaiming the Input, thus only actually handing over the difference between the Output and Input. You haven't actually gained an extra £400.

[SueEllen]

standard

Unless you mucked up the calculation (which is done automatically) the answer is thus -

There is no £400 left. What actually happens is that you collect and pay over £2000 in output VAT and at the same time reclaim back £400 in input tax.

standard

[SueEllen]

Err, No.....only 1600 was paid........2000 was billed and collected in sales....

What VAT scheme are you on?

There is no £400 left. What actually happens is that you collect and pay over £2000 in output VAT and at the same time reclaim back £400 in input tax.

Err, No.....only 1600 was paid........2000 was billed and collected in sales....

[Craig@Clarity]

Question on VAT returns.

When a VAT return is submitted to HMRC, input VAT is deducted from Output VAT. What happens to the leftover VAT in the company and how should it be treated in terms of funds available to the company ?

So if you have 2000 in Sales VAT, and deduct 400 in Input VAT, you remit 1600 to the HMRC - what do you do with the 400 leftover ?

There is no £400 left. What actually happens is that you collect and pay over £2000 in output VAT and at the same time reclaim back £400 in input tax.

[TestMangler]

Spend it :-)