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Traps in the VAT Flat Rate Scheme
Newsletter issue - April 09.
The Taxman likes to encourage small businesses to join the flat rate VAT scheme. This scheme simplifies your VAT return as you apply the relevant flat percentage applicable for your trade sector to all your total business income each quarter, (including the VAT charged), and pay the resulting amount as VAT to the Taxman as VAT. You don't have to worry about reclaiming VAT charged on purchases.
However, the flat rate VAT scheme does not suit all small businesses. The flat rate must be applied to all business income, including interest received from business bank accounts, rents, and sales of assets where VAT was not reclaimed, such as cars or property. This means you effectively pay VAT on the gross receipts of sales on which you have not collected any VAT.
If you are a sole-trader the flat rate should be applied to any letting income you receive in your sole name, as lettings are regarded as a business for VAT purposes. Lettings undertaken as a partnership, perhaps jointly with your spouse, are not counted as part of your sole-trader business income. When you sell a let property the flat rate should be applied to the total proceeds. You can withdraw from the flat rate scheme before you sell a high value item such as a property, but you have to stay out of the scheme for at least 12 months.
Remember the flat rates for most business sectors changed on 1 December 2008, when the standard rate of VAT was reduced to 15%, so check you are using the correct flat rate for your sector.
What our clients say about us...
"Paul has provided accountancy services to my company for 2 years now. I can recommend Paul very highly; his skills as an accountant are highly detailed and professional and he is always available to provide advice. One aspect of the way Paul works that I greatly appreciate is a preference to meet face to face when there is a detailed conversation to be had. I personally find this more productive and is a benefit of working with a small accountancy firm that you wouldn't get with the large faceless providers."
ALISTAIR FAIRWEATHER - PROGRAMME & PROJECT MANAGER, DELIVERING/RESCUING I.T. 7 BUSINESS CHANGE WITH BUDGETS UPTO £50M INC SUPPIER MANAGEMENT
"I couldn't ask for more from Paul as an Accountant. Paul has been accountant to Work Relief Charity Recruitment for just over a year now and is proving an invaluable asset. Accurate, knowledgeable, flexible with an emphasis on service delivery, I would recommend Paul's services to any organisation looking for an accounts professional."
Neil Price - Managing Director at Work Relief Charity Recruitment
"Paul was a referral from a family member when I started my business 2 years ago. As this was the first time I had ever run my own company I was totally clueless over the financial side of matters and was worried that I may have made mistakes in any of my accounting. I needn't have worried as after enaging Paul for a set monthly fee he was always there on the end of the phone for all sorts of questions I had and no matter how trivial they were Paul gave me all the information I required and more and did an excellent and painless job at the end of my first year! Couldn't ask for any better to be honest. Just two words - hire him!!!"
Lee Westrap MBCS - Director - Bulldog IT Services
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