VAT FRS - Can someone check my maths for me please?

[Wanderer]

Only after accounting for the input VAT you've paid over the year and the corporation tax can you determine your net extra cash which might not be very much at all. If your input VAT over the year works out to more than what you are making in FRS surplus, then you are actually *worse* off and should be on the standard scheme.

There is a useful Flat Rate VAT calculator here Bassetts - VAT Flat Rate Scheme Calculator.

[TheCyclingProgrammer]

Ah right, thanks Clare. So, based on that, and assuming my maths/arithmetic is correct, by joining the VAT FRS, I'd be approximately £57pw better off based on a £300pd daily rate. This equates to £230 per month on a 4-week billing basis.

Doesn't sound like a lot, and what I'd like to know from people who actually do this is, is it a lot of extra paperwork? I'm aware of the importance of VAT. I think it needs to be paid every quarter, no mistakes. I do have an accountant by the way. If it's a lot of extra work, I think I'll leave it for now, at least until I have to register for VAT.

If it's like an extra one or two hours a month, then it might be worth it. So, is the extra administration overly onerous?

The admin overhead is next to nothing, it's quite straightforward. But remember that if you are on the FRS then you cannot claim input VAT back except for on capital purchases over £2k.

A lot of people see flat-rate scheme surplus as "extra money" but remember that a) you have to pay corporation tax on this income and b) the surplus is supposed to cover any input VAT costs you may incur over the year.

Only after accounting for the input VAT you've paid over the year and the corporation tax can you determine your net extra cash which might not be very much at all. If your input VAT over the year works out to more than what you are making in FRS surplus, then you are actually *worse* off and should be on the standard scheme.

Admittedly, for most contractors, input VAT should be relatively low over the course of the year so it might still be worth it (I am on the FRS myself) and you can still claim input VAT for your big capital expenses (subject to certain conditions).

[Scrag Meister]

Thanks all, I really appreciate the advice and guidance. I think I will voluntarily join the scheme. It's not a lot of extra dough - particularly as I pay corporation tax on top of that - but I'm happy to join it anyway.

Cheers!

FRS is the logical contractor choice really, unless you are buying lots of things, e.g. Hardware, that you can claim the VAT back on when you sell it on.

Better in your pocket than HMRC, a few hundred quid each quarter.

[GillsMan]

Thanks all, I really appreciate the advice and guidance. I think I will voluntarily join the scheme. It's not a lot of extra dough - particularly as I pay corporation tax on top of that - but I'm happy to join it anyway.

Cheers!

[BA to the Stars]

FRS takes less than an hour a quarter to complete (including preparing the return and sending off the payment). It is very straightforward.

Just remember, the extra £230 per month which you mention in your note is subject to Corporation Tax.

All in all, it is a lot easier than logging all your input and output VAT.

[Hex]

Ah right, thanks Clare. So, based on that, and assuming my maths/arithmetic is correct, by joining the VAT FRS, I'd be approximately £57pw better off based on a £300pd daily rate. This equates to £230 per month on a 4-week billing basis.

Doesn't sound like a lot, and what I'd like to know from people who actually do this is, is it a lot of extra paperwork? I'm aware of the importance of VAT. I think it needs to be paid every quarter, no mistakes. I do have an accountant by the way. If it's a lot of extra work, I think I'll leave it for now, at least until I have to register for VAT.

If it's like an extra one or two hours a month, then it might be worth it. So, is the extra administration overly onerous?

The point of the FRS is that it is LESS work than being on the normal VAT scheme. You don't account for input and output VAT, you just pay VAT on all your turnover.

Easy calculation for what you gain on FRS is 1.2 * 0.855 = 1.026
This is presuming 20% VAT (giving the 1.2) and 14.5% you pay on FRS scheme (giving the 0.855 (=100-14.5)).
With the 1% extra you get in year one the calc becomes 1.2 * 0.865 = 1.038

So for ever pound you invoice (ex vat) you actually get to keep £1.038. If you bill £50,000 in a year then the FRS gives an extra £1,900 in year one and an extra £1,300 thereafter.

[backrubber]

The following free tool lets you calculate VAT FRS, corporation tax, retention rate, etc:

Earnings Tracker

You can either use it online or download it.

[Clare@InTouch]

Ah right, thanks Clare. So, based on that, and assuming my maths/arithmetic is correct, by joining the VAT FRS, I'd be approximately £57pw better off based on a £300pd daily rate. This equates to £230 per month on a 4-week billing basis.

Doesn't sound like a lot, and what I'd like to know from people who actually do this is, is it a lot of extra paperwork? I'm aware of the importance of VAT. I think it needs to be paid every quarter, no mistakes. I do have an accountant by the way. If it's a lot of extra work, I think I'll leave it for now, at least until I have to register for VAT.

If it's like an extra one or two hours a month, then it might be worth it. So, is the extra administration overly onerous?

Not at all - if you're flat rate then it's easy. Each quarter:

Make a list of your invoices and take the gross x your flat rate over a three month period.
Do a bank transfer to HMRC.
Complete the return online via HMRC gateway (5 minutes) where you enter gross invoices and VAT due.
Keep a PDF copy of the calculation and the acknowledgement, just in case you ever need them.
Send copies to your accountant, so they know what's gone on through the year.

If you issue one invoice a month then it's very simple. Even if you issue one invoice a week, as long as you keep decent records of your invoices then it should be quite straightforward.

You'll also be paying CT on your flat rate profit, so consider that too if overall profit is a factor in deciding whether to go ahead.

[GillsMan]

The flat rate is taken from the gross invoice value, not the net, so it should be 14.5% of £1,800 = £261.

Remember you also get a 1% discount in the first year.


It's worth reading through the HMRC guide to find your flat rate, and ensure you include everything necessary in your turnover. Ignore bank interest though, the guidance is incorrect due to a recent legal decision.

HM Revenue & Customs: Flat Rate Scheme for VAT

Ah right, thanks Clare. So, based on that, and assuming my maths/arithmetic is correct, by joining the VAT FRS, I'd be approximately £57pw better off based on a £300pd daily rate. This equates to £230 per month on a 4-week billing basis.

Doesn't sound like a lot, and what I'd like to know from people who actually do this is, is it a lot of extra paperwork? I'm aware of the importance of VAT. I think it needs to be paid every quarter, no mistakes. I do have an accountant by the way. If it's a lot of extra work, I think I'll leave it for now, at least until I have to register for VAT.

If it's like an extra one or two hours a month, then it might be worth it. So, is the extra administration overly onerous?

[Clare@InTouch]

The flat rate is taken from the gross invoice value, not the net, so it should be 14.5% of £1,800 = £261.

Remember you also get a 1% discount in the first year.


It's worth reading through the HMRC guide to find your flat rate, and ensure you include everything necessary in your turnover. Ignore bank interest though, the guidance is incorrect due to a recent legal decision.

http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm

[TestMangler]

I've done a search on VAT FRS before posting!

I'm not currently VAT-registered, but thinking of going across to this soon.

VAT is charged at 20% and I understand that I have to pay 14.5% to HMRC from each invoice. Is that correct? If so, are the following amounts true, if the daily rate is £300pd (to simplify the maths):

Exc VAT Weekly Invoice - £1500
VAT@ 20% - £300
Total Invoice - £1800
VAT Payable to HMRC - £217.50
My extra profit as a result of VAT FRS - £82.50

Is that all correct?

Other than the fact that there is no maths in there (what you 'did' was arithmetic)

[GillsMan]

I've done a search on VAT FRS before posting!

I'm not currently VAT-registered, but thinking of going across to this soon.

VAT is charged at 20% and I understand that I have to pay 14.5% to HMRC from each invoice. Is that correct? If so, are the following amounts true, if the daily rate is £300pd (to simplify the maths):

Exc VAT Weekly Invoice - £1500
VAT@ 20% - £300
Total Invoice - £1800
VAT Payable to HMRC - £217.50
My extra profit as a result of VAT FRS - £82.50

Is that all correct?