what rate of VAT should I pay?

[les35]

If the calculation is as fine as you suggest you will be better off leaving the FRS. This is because the LCT option requires a constant (quarterly) monitoring of the 2% threshold. Once you leave the FRS you cannot re-join soon anyway. So just leave now!

[GlobalTaxAdviser]

Hi

If you meet the criteria costs 2% of Turnover then your FRS rate will be 14.5% (less 1% in the first year) so you may gain under FRS

Kind Regards

GTA

[GlobalTaxAdviser]

Hi

If you meet the criteria costs 2% of Turnover then your FRS rate will be 14.5% (less 1% in the first year) so you may gain under FRS

Kind Regards

GTA

[AJ16]

Hi

If you meet the criteria costs 2% of Turnover then your FRS rate will be 14.5% (less 1% in the first year) so you may gain under FRS

Kind Regards

GTA

Thanks GTA (& others)

I don't think I would meet the 2% criteria. In this case would the 16.5% output VAT apply to me?

Also when calculating the output VAT, would it be based on taking the gross value of the invoice sent to the client including 20% VAT? If so it would seem that VAT charged to the customer is taxed.

[spidersong]

Also when calculating the output VAT, would it be based on taking the gross value of the invoice sent to the client including 20% VAT? If so it would seem that VAT charged to the customer is taxed.

Not really. The client receives an invoice for, say, £100 plus £20 of VAT, so they only pay tax in relation to the net value they've paid/commissioned. The supplier has made a net sale worth £100 of income to them, which is what they'd get to keep in normal accounting, they'd normally have to pay over £20 less any input tax they could recover instead they pay over £19.80 which would be the VAT on less than £100. So they get to keep £100.20 instead, woo-hoo!

So although the calculation is based upon the tax, you're not taxed on the tax; to be taxed on the tax someone would need to be liable to both pay over the tax due as well as the tax calculated based upon that tax (this does happen with Stamp Duty Land Tax sometimes). So in this case the tax base is actually a reduced value.

[AJ16]

Thank you for all your helpful responses, I'm still struggling to gauge though whether being VAT reg would work for me or whether so should take a few weeks off and enjoy relaxing a bit.
I think that I still have the two main questions- what VAT rate would I pay, and if I were to invoice a client £120 (inc. £20 VAT), what would mh VAT iability be?
Thanks again
AJH

[spidersong]

You appear to be within the Low Cost Trader exclusion so:
If on the Flat Rate Scheme you would be accounting for 16.5% of VAT inclusive turnover.
If you invoiced for £120 being £100 plus £20 VAT to your customer then you would pay HMRC £19.80 and that would be that.

If you didn't go on the flat rate then you would pay HMRC £20 on the same job, but would reduce that by the VAT you've been charged on your business purchases, so if that averages purchases of more than £1 for every £100 you take in you would be better off being on normal accounting, if the additional recovery would offset your additional record keeping costs for completing VAT returns etc.

[AJ16]

You appear to be within the Low Cost Trader exclusion so:
If on the Flat Rate Scheme you would be accounting for 16.5% of VAT inclusive turnover.
If you invoiced for £120 being £100 plus £20 VAT to your customer then you would pay HMRC £19.80 and that would be that.

If you didn't go on the flat rate then you would pay HMRC £20 on the same job, but would reduce that by the VAT you've been charged on your business purchases, so if that averages purchases of more than £1 for every £100 you take in you would be better off being on normal accounting, if the additional recovery would offset your additional record keeping costs for completing VAT returns etc.

Thanks, I understand now do I'll speak to my accountant about what costs I incur that might qualify. As I'll get the 14.5% rate for the first year I'll probably go on the LCTS for a year then review.