Thank you so much for explaining this! I am on the flat rate scheme and needed it explaining properly... I was putting in the figures into my MTD software and was wondering why there wasn't much difference
Great video Dan, as always! 👏🏻 Quick Question: If you are NOT a limited cost trader and your VAT is 8% (for example), do you still calculate your VAT liability based on the VAT inclusive amount of your turnover? For example: If your turnover is £1,000, is your VAT liability £96 (£1200 x 8%) or £80 (£1,000 x 8%)? Thanks! 🙂
Lovely clear explanation, thankyou. One question though. I have a VAT registered food business and I'm considering the flat rate scheme as I buy in most goods at 0%, buy a very small amount of recoverable/20% items, but have to charge 20% on most sales to my non-vat registered customers. If I were to go onto the flat-rate scheme, would the sales that I make now on 0% items (such as bread) be included in the total sales I'd pay the new flat rate on please?
Sadly vat flat rate includes zero rated, but you likely get a low %, have a look here www.gov.uk/vat-flat-rate-scheme/how-much-you-pay 6.2 here is info on turnover www.gov.uk/guidance/flat-rate-scheme-for-small-businesses-vat-notice-733--2#determining-your-flat-rate-turnover
Really interesting video. I make and sell handcrafted items and I'm looking on going VAT registered. The category I think I fall in is "all other manufacturing" at 9.5%. The thing is, I also sell premade items on my website but at a guess this only accounts for less than 5% of my overall sales. Could I still sign up for the flat rate scheme. Thanks
Section 4.8 solves this here, but you chose the one that applies to the main business activity www.gov.uk/guidance/flat-rate-scheme-for-small-businesses-vat-notice-733--2#determining-your-flat-rate-percentage
Hello everyone Construction company is been used flat Rate Scheme , but last week is been removed from the flat Rate scheme,my opinion is as a limited construction company working as a subcontractor should not use the flat Rate Scheme I need to now if I’m wrong or right I appreciate if you can clear my up with this information Many thanks
It depends on your situation and whether you are a ‘limited cost trader’ - it’s very specific to the individual circumstances. Have a read here for more www.heelanassociates.co.uk/vat-flat-scheme-explained-basics/
Hi there great video as always. I became VAT registered last year and after submitting my VAT return via my accountancy software I have a question. My VAT owed was £2000 and I had £70 VAT payments to offset this. My net payment to HMRC was therefore £1930 leaving a £70 credit. This credit is showing as equity on my balance sheet, but is not recorded in my P & L accounts. How do I access this £70 credit? If I withdraw it from my business account for instance what would I record the payment as? I could declare it as tax deductable income but given it is already recorded as an asset, this will cause an imbalance in my accounts of plus £70. Any advice would be appreciated - I can't be the only company owner facing this dliemna! Thanks
Your 2k should have been posted to your VAT account in your software. Your £70 should have been posted to your VAT account. The balance then paid to HMRC and this posted to your VAT account leaving a nil balance in your VAT account in your software. Your p&l should be net figures only.
Sounds like there might be something not quite set up right as you shouldn’t see a vat account as equity in the accounts. As per the reply below, when you enter (‘post’) transactions into the software and mark it as VaT on it, the vat builds up in the ‘VaT liability’ account. (let’s say your £70 is a build up of these transactions). Any vat on your sales will go in here to. When you pay the £1930 vat you point the transaction at the VaT liability (or some software will have another account that has a balance when you file the VaT return, called something like VAT suspense / payable). Doing this balances it out. In your profit and loss then the figures are correctly shown with no vat on.
Hi, I am embarking upon a new direction as an Agroforestry farmer - say I plan to plant trees which take 40-60 years to grow to a point at which they can be pollarded and I am able to sell the wood (I'll be dead by then of course), hence I'll be a farmer but not generating any profit. I'll only be spending money on equipment e.g. a UTV, chainsaw and other tools and equipment for the purpose of using entirely in the forestry business - Should I register for the VAT flat rate scheme using VAT98 and will this registration enable me to reclaim all the VAT I end up paying for the aforementioned tools, UTV etc. etc. Thanks
Sadly we can’t give 1-2-1 advice here, but in general be careful with flat rate scheme if looking to recover VaT with no sales. There are mechanisms to do so with assets, but depending on value you may not get the result you’d hope for.
Hello. Great video! How do you treat "the profit" on FRS - the difference between normal rate and reduce rate in limited company. Is this subject to corporation tax? I would appreciate your help, thank you
Hi Dan, I love your video! Something I struggle to work out: I import goods from the Netherlands and on a standard VAT scheme I would be able to reclaim the Dutch VAT which is usually 21% (called BTW) in the Netherlands. Can I still reclaim BTW on a Flat Rate scheme? Im guessing not as this would be too good to be true?? Thank you!
Hi there, maybe a little confusion as you can’t reclaim ‘foreign’ vat on a UK return, only UK vat. Either way no specific ‘input’ vat recovered on flat rate scheme it’s designed to take into account effectively a guess at what you’d reclaim on average.
Thanks for the great video. How can I leave the Flat Rate Scheme? I´ve already sent a letter to HMRC and requested it but never got an answer. Thanks in advance.
Hello. Great Videos by the way. Have a question, I am a sole trader in film industry, all my customers are VAT registered generally. I’ll be going LTD soon, but is it best to register VAT now or wait until I am LTD? Lastly, is it just a case of charging VAT on my invoices for my services and just tucking that away every time I am paid on those invoices generally? Thanks in advance
A lot depends on if you have VAT you want to recover VAT on items you bought as sole trade. If so, you may want to reg before being LTD. Tucking away VAT from invoices is a good planning tool yeah :- )
About to become VAT Registered due to 85k threshold. However my profits are very low to the amount I spend buying items (In the IT trade) I could spend 20k a month but but only make approx 22/23k on paper making 23k a month but 20k costs. Is it better being flat rate or standard?
It's difficult to say without knowing your full situation, but be careful with flat rate. Have a watch of this: th-cam.com/video/uMr3xxZ0iAw/w-d-xo.html
Thanks for the video… quick question I have just set up my limited company and in the middle of getting registered for VAT (flat rate scheme) I am a contractor so wouldn’t have a lot of input VAT hence the flat rate but I am slightly confused as to what what % to use. I work as a finance migration analyst effectively working on the onboarding team extracting financial data from legacy systems, cleansing the data and loading into the primary finance system. What type of business would I come under as accounting / bookkeeping is 14.5% and financial services is 13.5%?
Sadly we can’t give advice to specific circumstances here due to our professional regs, but generally you’d expect it to be one of the higher % similar to those you suggest.
Difficult one to say! These rates are often a judgement call. If you believe there is a serious error though, it's best to contact HMRC and be up front. Errors under £10k in the last 4 of those years can be adjusted on a return however. www.gov.uk/vat-corrections
Thank you for this.i have a question. I registered as flat rate.havent started yett .I have been asked to pay £750 2x.i have not charged any vat..what do I do and why did I do.do I deregister
Sounds like HMRC are guessing ('assessing') the amount as you haven't submitted the returns? You can deregister by following the link below, but if you intend to trade you might be better off just submitting the NIL returns (and the £750's if they are assessments will be voided). www.gov.uk/vat-registration/cancel-registration
might be a super basic question, but do I pay income tax ON the VAT? eg let say I earn £100k and with vat that's £120k. When working out income tax is 120k the turnover and effectively the amount that I now use for tax purposes, or is the 20k essentially 'tax free' (other than the, eg, 12% vat I have to pay on the whole amount?
Great question, no you basically ignore than vat on your income, and any claimable vat on your expenses, when working out tax/NI , and if you are drawing up accounts. If you use accounting software all the reports work like this also.
Question: I have a VAT registered business most of my expenditure is supplies, but most comes from non-vat registered suppliers. Could I use the flat-rate scheme in this situation?
Yes in theory, but without full details we couldn't say here if it's right for you. But practically its possible as the % you hand over doesn't matter if you are actually being charged VAT or not.
Thank you Dan, once again clear and helpful. I just need to remember why I didn't go flat rate as it seems I have to rewatch to remember why 😂
Haha ye it’s very limited use these days. Have some clients on it though.
This is very helpful thanks. I'm just applying at the moment so this really helped me to work out what's best to do.
Glad it was helpful!
Thank you so much for explaining this! I am on the flat rate scheme and needed it explaining properly... I was putting in the figures into my MTD software and was wondering why there wasn't much difference
Glad it was helpful!
Thank you for all the videos, the way you explain everything is great!
Glad you like them!
Great video Dan, as always! 👏🏻 Quick Question: If you are NOT a limited cost trader and your VAT is 8% (for example), do you still calculate your VAT liability based on the VAT inclusive amount of your turnover?
For example:
If your turnover is £1,000, is your VAT liability £96 (£1200 x 8%) or £80 (£1,000 x 8%)?
Thanks! 🙂
Best way to think about it in most situations here is 8% of money received.
Another fabulous and helpful video...
Thank you very much 👍👍👍👍👍🥂🥂🥂🎉🥳🥰
Glad it helped Lawrence!
Lovely clear explanation, thankyou. One question though. I have a VAT registered food business and I'm considering the flat rate scheme as I buy in most goods at 0%, buy a very small amount of recoverable/20% items, but have to charge 20% on most sales to my non-vat registered customers. If I were to go onto the flat-rate scheme, would the sales that I make now on 0% items (such as bread) be included in the total sales I'd pay the new flat rate on please?
Sadly vat flat rate includes zero rated, but you likely get a low %, have a look here www.gov.uk/vat-flat-rate-scheme/how-much-you-pay
6.2 here is info on turnover www.gov.uk/guidance/flat-rate-scheme-for-small-businesses-vat-notice-733--2#determining-your-flat-rate-turnover
Really interesting video. I make and sell handcrafted items and I'm looking on going VAT registered. The category I think I fall in is "all other manufacturing" at 9.5%. The thing is, I also sell premade items on my website but at a guess this only accounts for less than 5% of my overall sales. Could I still sign up for the flat rate scheme. Thanks
Section 4.8 solves this here, but you chose the one that applies to the main business activity www.gov.uk/guidance/flat-rate-scheme-for-small-businesses-vat-notice-733--2#determining-your-flat-rate-percentage
Very well explained. Thank you.
Glad it was helpful!
Nice Vid Dan!
Glad you found it useful.
Hello everyone
Construction company is been used flat Rate Scheme , but last week is been removed from the flat Rate scheme,my opinion is as a limited construction company working as a subcontractor should not use the flat Rate Scheme I need to now if I’m wrong or right I appreciate if you can clear my up with this information
Many thanks
It depends on your situation and whether you are a ‘limited cost trader’ - it’s very specific to the individual circumstances. Have a read here for more www.heelanassociates.co.uk/vat-flat-scheme-explained-basics/
Hi there great video as always. I became VAT registered last year and after submitting my VAT return via my accountancy software I have a question. My VAT owed was £2000 and I had £70 VAT payments to offset this. My net payment to HMRC was therefore £1930 leaving a £70 credit. This credit is showing as equity on my balance sheet, but is not recorded in my P & L accounts. How do I access this £70 credit? If I withdraw it from my business account for instance what would I record the payment as? I could declare it as tax deductable income but given it is already recorded as an asset, this will cause an imbalance in my accounts of plus £70. Any advice would be appreciated - I can't be the only company owner facing this dliemna! Thanks
Your 2k should have been posted to your VAT account in your software. Your £70 should have been posted to your VAT account. The balance then paid to HMRC and this posted to your VAT account leaving a nil balance in your VAT account in your software. Your p&l should be net figures only.
Sounds like there might be something not quite set up right as you shouldn’t see a vat account as equity in the accounts.
As per the reply below, when you enter (‘post’) transactions into the software and mark it as VaT on it, the vat builds up in the ‘VaT liability’ account. (let’s say your £70 is a build up of these transactions).
Any vat on your sales will go in here to.
When you pay the £1930 vat you point the transaction at the VaT liability (or some software will have another account that has a balance when you file the VaT return, called something like VAT suspense / payable).
Doing this balances it out. In your profit and loss then the figures are correctly shown with no vat on.
Hi, I am embarking upon a new direction as an Agroforestry farmer - say I plan to plant trees which take 40-60 years to grow to a point at which they can be pollarded and I am able to sell the wood (I'll be dead by then of course), hence I'll be a farmer but not generating any profit. I'll only be spending money on equipment e.g. a UTV, chainsaw and other tools and equipment for the purpose of using entirely in the forestry business - Should I register for the VAT flat rate scheme using VAT98 and will this registration enable me to reclaim all the VAT I end up paying for the aforementioned tools, UTV etc. etc. Thanks
Sadly we can’t give 1-2-1 advice here, but in general be careful with flat rate scheme if looking to recover VaT with no sales. There are mechanisms to do so with assets, but depending on value you may not get the result you’d hope for.
Hello. Great video! How do you treat "the profit" on FRS - the difference between normal rate and reduce rate in limited company. Is this subject to corporation tax?
I would appreciate your help, thank you
Effectively the vat you pay is not taken into account when you work out profits. I guess you could look at it as yes the difference is taxed.
Hi Dan, I love your video! Something I struggle to work out: I import goods from the Netherlands and on a standard VAT scheme I would be able to reclaim the Dutch VAT which is usually 21% (called BTW) in the Netherlands. Can I still reclaim BTW on a Flat Rate scheme? Im guessing not as this would be too good to be true?? Thank you!
Hi there, maybe a little confusion as you can’t reclaim ‘foreign’ vat on a UK return, only UK vat.
Either way no specific ‘input’ vat recovered on flat rate scheme it’s designed to take into account effectively a guess at what you’d reclaim on average.
Thanks for the great video. How can I leave the Flat Rate Scheme? I´ve already sent a letter to HMRC and requested it but never got an answer. Thanks in advance.
They are probably just being really slow sadly, its a 6+ week wait. Did you have any luck? Writing is the usual way.
Hi, thank you for your videos. Can you please do video on IR 35.
Any particular questions on it? Pretty vast topic that one!
Hello. Great Videos by the way. Have a question, I am a sole trader in film industry, all my customers are VAT registered generally. I’ll be going LTD soon, but is it best to register VAT now or wait until I am LTD? Lastly, is it just a case of charging VAT on my invoices for my services and just tucking that away every time I am paid on those invoices generally? Thanks in advance
A lot depends on if you have VAT you want to recover VAT on items you bought as sole trade. If so, you may want to reg before being LTD.
Tucking away VAT from invoices is a good planning tool yeah :- )
About to become VAT Registered due to 85k threshold. However my profits are very low to the amount I spend buying items (In the IT trade) I could spend 20k a month but but only make approx 22/23k on paper making 23k a month but 20k costs. Is it better being flat rate or standard?
It's difficult to say without knowing your full situation, but be careful with flat rate.
Have a watch of this: th-cam.com/video/uMr3xxZ0iAw/w-d-xo.html
Thanks for the video… quick question I have just set up my limited company and in the middle of getting registered for VAT (flat rate scheme)
I am a contractor so wouldn’t have a lot of input VAT hence the flat rate but I am slightly confused as to what what % to use.
I work as a finance migration analyst effectively working on the onboarding team extracting financial data from legacy systems, cleansing the data and loading into the primary finance system.
What type of business would I come under as accounting / bookkeeping is 14.5% and financial services is 13.5%?
Sadly we can’t give advice to specific circumstances here due to our professional regs, but generally you’d expect it to be one of the higher % similar to those you suggest.
Thanks for the video!
Glad you enjoyed Ross
My new accountant has told me that my old accountant put me on the wrong rate for seven years. Am I Iooking at a world of pain from HMRC?
Difficult one to say!
These rates are often a judgement call.
If you believe there is a serious error though, it's best to contact HMRC and be up front.
Errors under £10k in the last 4 of those years can be adjusted on a return however.
www.gov.uk/vat-corrections
Thank you for this.i have a question. I registered as flat rate.havent started yett .I have been asked to pay £750 2x.i have not charged any vat..what do I do and why did I do.do I deregister
Sounds like HMRC are guessing ('assessing') the amount as you haven't submitted the returns? You can deregister by following the link below, but if you intend to trade you might be better off just submitting the NIL returns (and the £750's if they are assessments will be voided).
www.gov.uk/vat-registration/cancel-registration
might be a super basic question, but do I pay income tax ON the VAT? eg let say I earn £100k and with vat that's £120k. When working out income tax is 120k the turnover and effectively the amount that I now use for tax purposes, or is the 20k essentially 'tax free' (other than the, eg, 12% vat I have to pay on the whole amount?
Great question, no you basically ignore than vat on your income, and any claimable vat on your expenses, when working out tax/NI , and if you are drawing up accounts.
If you use accounting software all the reports work like this also.
Question: I have a VAT registered business most of my expenditure is supplies, but most comes from non-vat registered suppliers. Could I use the flat-rate scheme in this situation?
Yes in theory, but without full details we couldn't say here if it's right for you.
But practically its possible as the % you hand over doesn't matter if you are actually being charged VAT or not.
Please help. I am a freelancer and will earn around £20,000 each year. Should I charge VAT for my work and should I use flat rate system ?
Have you seen this one? SHOULD I BE VAT REGISTERED?
th-cam.com/video/Y8qWDts2bA8/w-d-xo.html
Very helpful thanks so much
Glad it helped!
Great thank you so much 😊
Your welcome!
Is this the Farmer Flat Rate scheme or that's different. I was trying to find this option when registering for VAT.
It’s different, see here www.gov.uk/guidance/agricultural-flat-rate-scheme-notice-70046