VAT Tool for Flat Rate Scheme users

And lo. HMRC have released the online tool to help you work out whether the Flat Rate Scheme (FRS) is worth it once the changes come in on 1 April 2017. For most freelancers and consultants I suspect the answer will be no.

I’ve talked about the proposed VAT changes previously. It’s all about applying a punitive flat rate if you’re deemed to be a ‘Low Cost Trader’. Now we know that the FRS is really only meant to be used by people who sell goods as their main business. Selling skills apparently doesn’t cut it any more if you want to use the simplified VAT scheme.

The online tool is pretty simple to use:

Access it here >

What’s interesting is the number of business expenses which are NOT included in the calculation when working out the total cost of goods bought. For example, you can’t include things you give away, so business cards don’t count. You can’t include phone, broadband, capital equipment (like computers), etc. etc..

So what now?

So if it’s not worth using  flat rate VAT any more, where do you go from here? There are three options:

    1. Switch to the ‘normal’ receipts-based VAT system. This will involve working out individual amounts of VAT you’re reclaiming from things you’ve bought. An accountant I spoke to suggested this would take me 30 mins every quarter rather than 10 mins per quarter under the FRS.
      Read more here about how to switch >
    2. De-register from VAT altogether. Throw in the towel. You win Mr Hammond. Remember you can only do this if your turnover in any 12 months is below the de-registration threshold, which is currently £81,000 (2016-17). And of course you’d have to re-register if your turnover goes above the compulsory registration threshold again – currently £83,000 (2016-17).
      Read more about de-registration here >
    3. Stick with the FRS and just use the punitive 16.5% rate. You’re no better off financially, but perhaps your business will look a bit more polished because it has a VAT number.

Hat tip to Lewis and Co accountants in Bloomsbury for pointing out to me that new cloud-based accounting software does a lot of calculating for you. Some generate invoices, and work out quarterly VAT. It might suit people who are going to switch to the standard form of VAT, and it would help them get prepared for Making Tax Digital.

Fancy finding out more? Pour yourself a stiff drink…

Read more here >

Posted on 06 March 2017

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