RAL wrote:you can not claim vat on your purchases
When I said that you can not claim vat means, that vat element you have to add it on underlying expense.
So for example if you purchased stationery for £100 and vat is £15.00. So enter full £115.00 as cost in your accounts as you are on FRS you can not claim.
If you are on standard vat than you enter expense £100 and claim back £15.00 via vat return.
profet wrote:This would mean that I will always pay 40% tax on difference between the 15% I charge and the 9.5% I pay. Effectively then I am paying a much higher flat rate - more like 12%, as the different between the two rate, which is supposed to offset my VAT input is actually being paid as income tax. This really is madness - I hope I have misunderstood.
In fact, if I can not claim my VAT purchases as expenses, then I will almost certainly be paying more as a result of the Flat Rate Scheme. It feels as if the 9.5% figure that HMRC assign to my industry is completely misleading if you will always have to pay 40% income tax on the difference between the two rates, regardless of your VAT input.
Its almost as much of a joke as HMRC applying the flat rate to the VAT inclusive turnover, not the pre-VAT amount. I mean 9.5% is easy to understand - 9.5% of 115% is a little more confusing. And then there is having to write the VAT inclusive figure on the quarterly return in a box that clearly asks for a VAT exclusive figure. How hard can it be to make a separate form. No wonder accountants make so much money.
You need to do an excercise whether which scheme is suitable to you. FRS is not always suitable to everyone.
If you providing services than FRS is benefitting but if you have lot of purchase than FRS may not suitable.
Regarding income tax, everybody has to pay tax so if you are on FRS and it is beneficial to you then you have to tax on profit you make on being FRS scheme.
VAT is huge and very complex. When you come to deal with property, innternation, wthin europe (services and goods). It is minefield, no wonder even HMRC has conflicting information on their website.