Tag: Flat Rate

Hospitality VAT rates – what is going on? Can I use Flat Rate and pay No VAT?

Serviced Accommodation/Furnished Holiday Lets (FHL) are currently enjoying special rates of VAT

The government made an announcement on 8 July 2020 allowing VAT registered businesses to apply a temporary 5% reduced rate of VAT to certain supplies relating to:

  • hospitality
  • hotel and holiday accommodation
  • admissions to certain attractions

The temporary reduced rate will apply to supplies that are made between 15 July 2020 and 31 March 2021.

These changes are being brought in as an urgent response to the coronavirus (COVID-19) pandemic to support businesses severely affected by forced closures and social distancing measures.

That rate is set to change to a new rate of 12.5% from 1 October 2021 to 31 March 2022

What is the Flat Rate scheme?

The Flat Rate Scheme is designed to simplify VAT because the Flat Rate % is applied to your turnover including VAT.

It doesn’t change the VAT rate charged to the client it just helps to calculate the VAT to be paid to HMRC.

You can join the Flat Rate Scheme if:

  • you’re a VAT-registered business
  • you expect your VAT taxable turnover to be £150,000 or less (excluding VAT) in the next 12 months
  • you get a 1% discount on the flat rate if you’re in your first year as a VAT-registered business.

You must leave the scheme if:

  • you’re no longer eligible to be in it
  • on the anniversary of joining, your turnover in the last 12 months was more than £230,000 (including VAT) – or you expect it to be in the next 12 months
  • you expect your total income in the next 30 days alone to be more than £230,000 (including VAT)

What are the Flat Rates?

Hotel or accommodation before 15 July 202010.5
Hotel or accommodation from 15 July 2020 to 30 September 20210
Hotel or accommodation from 1 October 2021 to 31 March 20225.5

Why would Flat Rate VAT help?

Example You bill a client for £1,200 including VAT, so thats £1,000 plus 20% VAT.

You’re a Holiday Let, so the VAT flat rate for your business is 0%.

Your flat rate payment will be 0% of £1,200, so nothing to pay

This is great news for Furnished Holiday Lets especially if they are just crossing the £85,000 VAT Threshold

Most Holiday Lets can’t increase their prices to incorporate VAT when they cross the VAT threshold because they would be uncompetitive so VAT is direct hit to their profits.

On the basis that the accommodation fee is unchanged but now includes a VAT element, if Flat Rate is used and the rate is 0% then no VAT is paid to HMRC.

That may not work for every business, it depends on whether you have a high level of VAT expenses which would offset the VAT and could result in a refund for example when you first register you may be able to reclaim VAT on pre-registration costs. Flat Rate restricts the recovery of expenses, you cannot reclaim the VAT on your purchases – except for certain capital assets over £2,000

Its also a problem if you’re classed as a ‘limited cost business’ if your goods cost less than either:

  • 2% of your turnover
  • £1,000 a year (if your costs are more than 2%)

This means you pay a higher flat rate of 16.5%.

steve@bicknells.net

How do you leave the Flat Rate Scheme?

Businesswoman Leaving Job vector

In the next few weeks and months many small businesses will leave the VAT Flat Rate Scheme.

The reason why Flat Rate is going see an exodus is because of Low or Limited cost traders will see their Flat Rate increased to 16.5% in April.

So for example

If your sales are £5,000, the VAT is £1,000, total £6,000 x 16.5% = £990 VAT payable, so HMRC have let you keep £10!

It is highly likely that almost every trader will have input tax higher than £10 so therefore there is no point in being in the Flat Rate Scheme.

How to leave

You can choose to leave the scheme at any time.

To leave, write to HMRC and they will confirm your leaving date.

HM Revenue and Customs
Imperial House
77 Victoria Street
Grimsby
Lincolnshire
DN31 1DB

Ask your accountant if you need help.

steve@bicknells.net

Will your Flat Rate VAT bill be going up in April?

omg man

The Flat Rate VAT scheme is very popular with small businesses.

The Flat Rate Scheme is designed to simplify your records of sales and purchases. It allows you to apply a fixed flat-rate percentage to your gross turnover to arrive at the VAT due.

Fixed-rate percentages vary depending on the type of business. [HMRC VAT Notice 733]

The scheme is for businesses with a turnover no more than £150,000 a year, excluding VAT.

The problem is that HMRC feel the scheme has been abused and used as a way to pay less VAT especially by businesses with virtually no costs.

A Low or Limited Cost Trader would spend less than 2% on gross turnover, or less than £1000 on the purchase of goods.

From April 2017 they will get a special 16.5% flat rate.

Here are some of the businesses likely to be affected

  • Accountancy and legal services 14.5%
  • Journalism or entertaining 12.5%
  • Computer or IT consultancy 14.5%
  • Business services not listed elsewhere 12%
  • Estate agents and property management 12%
  • Management consultancy 14%

There are lots of other VAT schemes to choose from

Standard VAT Scheme – on this scheme the VAT is based on tax points from invoices

VAT Cash Accounting Scheme – if your turnover is below £1.35m you can account for VAT on a Cash basis, this is particularly helpful if your customers pay you on slower terms than you pay your suppliers

Annual Accounting Scheme for VAT – if your turnover is below £1.35m you could join the Annual Scheme and complete one return for the year but you make either 9 interim payments or 3 quarterly interim payments

Retail VAT Schemes – These are specific schemes aimed at mainly at shops and help to overcome the issues of mixed vat rate goods

VAT Margin Scheme – The margin scheme relates to second hand goods and accounts for VAT on the margin, for example on the sale of cars

They will all produce different answers!

Now might be a good time to make comparisons.

steve@bicknells.net

Is Flat Rate VAT the best option?

Stressed couple checking bills

There are lots of VAT schemes to choose from

Standard VAT Scheme – on this scheme the VAT is based on tax points from invoices

Flat Rate VAT Scheme – If your turnover is below £150k you could join the Flat Rate Scheme, this scheme applies a % to your sales to work out your VAT Liability, it can make VAT returns easier to complete and in can sometimes work in your favour as the Flat Rates may mean you pay less VAT, if you join in your first year of VAT registration you get an extra 1% off the rate for the first year.

VAT Cash Accounting Scheme – if your turnover is below £1.35m you can account for VAT on a Cash basis, this is particularly helpful if your customers pay you on slower terms than you pay your suppliers

Annual Accounting Scheme for VAT – if your turnover is below £1.35m you could join the Annual Scheme and complete one return for the year but you make either 9 interim payments or 3 quarterly interim payments

Retail VAT Schemes – These are specific schemes aimed at mainly at shops and help to overcome the issues of mixed vat rate goods

VAT Margin Scheme – The margin scheme relates to second hand goods and accounts for VAT on the margin, for example on the sale of cars

They will all produce different answers!

We have a Flat Rate comparison Tax Calculator that can help

Recently there have been lots of concerns about the Flat Rate Scheme

As reported by Rebecca Cave in accountingWEB

HMRC previously insisted that all consultants should chose the category ‘management consultants’ (flat rate: 14%), even if they were consultants in health and safety, employment, or marketing. Now those businesses who do not describe themselves as management consultants are free to choose the category ‘business services not listed elsewhere’ (flat rate:12%).

Another area that caused confusion was the advice in para 4.4 of the previous version of VAT Notice 733, that all engineering consultants and designers should choose the category for ‘architect, civil and structural engineer or surveyor’ (flat rate 14.5%).

So a new VAT Notice 733 has been issued

Are you using the best VAT Scheme for your business?

steve@bicknells.net

 

Would you like to pay less VAT? have you tried Flat Rate?

Flat Rate Calculator 2

Google Docs Link https://docs.google.com/spreadsheets/d/1NyVN2XW3hjpcAYFdjGPCrbeMa-HyfOcgy3eKnNj2wi0/edit#gid=68376799

Usually, how much VAT a business pays or claims back from HM Revenue and Customs (HMRC) is the difference between the VAT they charge customers and pay on their purchases.

With the Flat Rate Scheme:

  • you pay a fixed rate of VAT over to HMRC
  • you keep the difference between what you charge your customers and pay over to HMRC
  • you can’t reclaim the VAT on your purchases – except for certain capital assets over £2,000

To join the scheme your VAT turnover must be less than £150,000 (excluding VAT) and you must apply to HMRC.

You can join the scheme:

Confirmation you’ve joined the scheme is sent to your VAT online account (or in the post if you don’t apply online).

In your first year as a VAT-registered business the rate is reduced by 1% until the day before your registration anniversary.

The Flat Rate Scheme has its own Cash Basis and Retail Systems. (VAT Notice 733)

Try our calculator to see if you could save money!

steve@bicknells.net

5 ways to pay less VAT

Businessman get idea

Many small businesses assume there is only one type of VAT scheme, the standard VAT scheme where you pay VAT on Sales and reclaim VAT on Purchases but in fact there are several schemes and they could save you money:

Cash Accounting

Using the Cash Accounting Scheme, you:

  • pay VAT on your sales when your customers pay you
  • reclaim VAT on your purchases when you have paid your suppliers

You can use the Cash Accounting Scheme if your estimated VAT taxable turnover during the next tax year is not more than £1.35 million.

Cash Accounting can improve your cashflow if your customers pay later than you need to pay your suppliers.

Flat Rate Scheme

You can join the Flat Rate Scheme for VAT and so pay VAT as a flat rate percentage of your turnover if:

  • your estimated VAT taxable turnover – excluding VAT – in the next year will be £150,000 or less.

Generally you don’t reclaim any of the VAT that you pay on purchases, although you may be able to claim back the VAT on capital assets worth more than £2,000

There’s a one per cent reduction in the flat rate percentages for your first year of VAT registration.

You can get a list of Flat Rates by following this Link

Flat Rate is easy to use and can save you money if you have a lower than average level of VAT purchases.

Annual Accounting Scheme

Using the Annual Accounting Scheme, you make either nine interim payments at monthly intervals, or three quarterly interim payments, throughout the year. You only need to complete one return at the end of each year. At that point you must pay any outstanding amount. If you have overpaid, you will receive a refund.

You can use the Annual Accounting Scheme if your estimated VAT taxable turnover for the coming year is not more than £1.35 million.

This could save you money by saving time.

Retail Schemes

Using standard VAT accounting, if you are VAT-registered then you must record the VAT on each sale in your accounting records. But with the VAT retail schemes, you work out the value of your total VAT taxable sales for a period – for example, a day – and the proportions of that total that are taxable at different rates of VAT (standard, reduced and zero) according to the scheme you are using. You then apply the appropriate VAT fraction to that sales figure to calculate your VAT due.

You do not need to record VAT separately in your accounts for each and every retail sale you make. This is particularly beneficial if you make a number of low value and/or small quantity sales to the general public. This can save you a lot of time and record keeping.

Margin Schemes

Normally you charge VAT on your sales, and reclaim VAT on your purchases. However, if you sell second-hand goods, works of art, antiques or collectibles, there may have been no VAT for you to reclaim when you bought them. You may be able to use a VAT margin scheme. This enables you to account for VAT only on the difference between the price you paid for an item and the price at which you sell it – your margin. You won’t pay any VAT if you don’t make a profit on a deal. You can still use standard VAT accounting for other sales and purchases such as overheads.

steve@bicknells.net

Choosing the right VAT Scheme could massively improve your cash flow

For SME’s there are lots of options, here is a quick summary:

Standard VAT Scheme – on this scheme the VAT is based on tax points from invoices

Flat Rate VAT Scheme – If your turnover is below £150k you could join the Flat Rate Scheme, this scheme applies a % to your sales to work out your VAT Liability, it can make VAT returns easier to complete and in can sometimes work in your favour as the Flat Rates may mean you pay less VAT, if you join in your first year of VAT registration you get an extra 1% off the rate for the first year.

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&propertyType=document&id=HMCE_CL_000345#P31_2162

http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm#4

VAT Cash Accounting Scheme – if your turnover is below £1.35m you can account for VAT on a Cash basis, this is particularly helpful if your customers pay you on slower terms than you pay your suppliers

http://www.hmrc.gov.uk/vat/start/schemes/cash.htm

Annual Accounting Scheme for VAT – if your turnover is below £1.35m you could join the Annual Scheme and complete one return for the year but you make either 9 interim payments or 3 quarterly interim payments

http://www.hmrc.gov.uk/vat/start/schemes/annual.htm#1

Retail VAT Schemes – These are specific schemes aimed at mainly at shops and help to overcome the issues of mixed vat rate goods

http://www.hmrc.gov.uk/vat/start/schemes/retail.htm#2

VAT Margin Scheme – The margin scheme relates to second hand goods and accounts for VAT on the margin, for example on the sale of cars

http://www.hmrc.gov.uk/vat/start/schemes/margin.htm

The cash flow impact of the different schemes can be considerable, to get an idea of impact consider your cash cycle http://stevejbicknell.com/2012/03/07/the-cash-cycle-what-is-it-what-is-your-cycle-how-can-you-improve-it/

To identify which schemes are availble to you take this test

http://www.businesslink.gov.uk/bdotg/action/layer?topicId=1074419970&r.s=sl

steve@bicknells.net