Reply to: VAT Flat rate and Petrol expenses

[malvolio]

I am just about to start out in contracting and I will get an accountant but not until I have money coming in. Until then I am trying to work something out.

Given the apparently simple question and the clearly quite complex answers it has produced, are you sure this is a good idea? The opportunities for making big mistakes in the early days are quite extensive; get professioanl advice before you make them, not after.

HTH

[confusedaboutmoney]

Vat Flat rate and Petrol expenses

Still confused.

So I am already on the flat rate scheme. To work out my petrol expenses do I simple claim £0.45p per mile x the number of miles. Is the flat rate as simple as that?

[LIMA Accountancy]

Martin at Nixon Williams

Apologies... rushed response!

Once you leave the FRS you are tied in for at least a year, unfortunately you can't change to suit which is most beneficial for that quarter

My point was to state that you cannot move freely back and forth from scheme to scheme each quarter to suit.


In agreeance with your statement, if you were on the FRS and leave to go 'standard' for a quarter to reclaim any input tax you cannot then jump back for 12 months.

[kaiser78]

Hasn't the FRS gone up it used to be 13% when the vat rate was 17.5%?

It depends what category you classify yourself under, although they have all increased by 1-2% as the VAT rate increased.

[mudskipper]

From my experience working with many contractors it is usually beneficial to join the Flat Rate Scheme.

The profit made from being on the Flat Rate Scheme almost always outweighs any input tax that could be reclaimed.

Another factor to consider as you are just starting out is if you are purchasing any new equipment...

On the FRS you can reclaim the VAT paid on capital equipment BUT ONLY IF THE INDIVIDUAL PURCHASE IS OVER £2000.

It's definately worth considering calculating your VAT on the standard scheme for the first quarter if you have computer purchases etc that are under this £2k threshold.

You can then reclaim the VAT on these larger expenses, before transferring over to the FRS once your expenses settle down.

Once you are on the FRS you are tied in for at least a year, unfortunately you can't change to suit which is most beneficial for that quarter.

But - you can reclaim VAT on any purchases made before registering for the scheme. So if you're buying new kit, buy it, register for the VAT, register for FRS and you'll still get the VAT back for the equipment purchase.

[JamJarST]

Sockpuppet,

The FRS percentage went up to 14.5% for IT consultancy with the increase in standard rate VAT (to 20%).

Martin

And don't forget that you get an extra 1% in your first year.

[Martin at NixonWilliams]

[QUOTE=LIMA Accountancy;1354905]From my experience working with many contractors it is usually beneficial to join the Flat Rate Scheme.

The profit made from being on the Flat Rate Scheme almost always outweighs any input tax that could be reclaimed.

Another factor to consider as you are just starting out is if you are purchasing any new equipment...

On the FRS you can reclaim the VAT paid on capital equipment BUT ONLY IF THE INDIVIDUAL PURCHASE IS OVER £2000.

It's definately worth considering calculating your VAT on the standard scheme for the first quarter if you have computer purchases etc that are under this £2k threshold.

You can then reclaim the VAT on these larger expenses, before transferring over to the FRS once your expenses settle down.

Once you are on the FRS you are tied in for at least a year, unfortunately you can't change to suit which is most beneficial for that quarter.[/QUOTE]

Hi Lima Accountancy,

Could you confirm the bolded text for me, it was my understanding that you could leave the flat rate scheme at anytime as per HMRC's guidance (12.1 here:HM Revenue & Customs) but if you leave the scheme you cannot re join in the following 12 months.


Sockpuppet,

The FRS percentage went up to 14.5% for IT consultancy with the increase in standard rate VAT (to 20%).

Martin

[Sockpuppet]

Hasn't the FRS gone up it used to be 13% when the vat rate was 17.5%?

[Sockpuppet]

The current VAT fraction is 1/6.

Take a VAT inclusive price (say £120), divide by 6 (= £20), and you get the VAT component of £120.

I see I always do the * 0.2 approach hence the confusion.

[DaveB]

If you are not going to be buying in large amounts of VAT'able supplies then the FRS is by far the better option.

You should be a couple of hundred pounds a month better off on the FRS and large capital purchases (over £2000) can still be claimed via your VAT return.

Example:

Day rate £350
20 Days * £350 = £7000
Plus VAT at 20% = £8400 (£7000*1.2)

On the normal VAT scheme you pay £1400 in VAT

On the FRS at 13% (14% - 1% 1st year discount. I forget the classification but the 14% rate is the one most contractors come under I believe).

You pay £8400 * 0.13 = £1092 in VAT

On a standard month you will save 1400-1092 = £308 on the FRS.

Unless you would have claimed more than £308 in VAT you are better off on the FRS.

[LIMA Accountancy]

Profit on Flat Rate will outweigh any inputs reclaimed

From my experience working with many contractors it is usually beneficial to join the Flat Rate Scheme.

The profit made from being on the Flat Rate Scheme almost always outweighs any input tax that could be reclaimed.

Another factor to consider as you are just starting out is if you are purchasing any new equipment...

On the FRS you can reclaim the VAT paid on capital equipment BUT ONLY IF THE INDIVIDUAL PURCHASE IS OVER £2000.

It's definately worth considering calculating your VAT on the standard scheme for the first quarter if you have computer purchases etc that are under this £2k threshold.

You can then reclaim the VAT on these larger expenses, before transferring over to the FRS once your expenses settle down.

Once you are on the FRS you are tied in for at least a year, unfortunately you can't change to suit which is most beneficial for that quarter.

[Greg@CapitalCity]

Six

divide by 5 shirley?

The current VAT fraction is 1/6.

Take a VAT inclusive price (say £120), divide by 6 (= £20), and you get the VAT component of £120.

[Sockpuppet]

You can claim back VAT on fuel (when claiming mileage) if your business is registered for VAT on the standard scheme. The calculation and record keeping are a little onerous - FRS is probably the way to go anyway.

(1) Determine the latest fuel advisory rate (HM Revenue & Customs: Company cars - advisory fuel rates from 1 June 2011)
(2) Multiply this by the number of miles travelled - and then divide by 6 to get the VAT amount you can claim;
(3) Make sure you have enough petrol receipts to show you actually purchased the fuel in the first place;

Good luck!

divide by 5 shirley?

[jchiver]

There is a recent thread in the Welcome / FAQs section on this, which may also be of use.

thanks

[kaiser78]

There is a recent thread in the Welcome / FAQs section on this, which may also be of use.