I am looking to start a limited company up as I am a coach driver and all of my mates are saying "sign up to the Flat Rate Scheme as I could gain with the VAT". I know I would have to earn under £150,000 but is there a minimum I have to earn?
confused dot com
-- Edited by Shamus on Monday 24th of August 2015 03:03:10 PM
No, you can be VAT registered from £1 if you want to be.
You need to compare the VAT off using both methods to ensure that you would be better off under one method rather than the other as once you choose you cannot swap and change between them.
kind regards,
Shaun.
p.s. only changed your post so that the bottom line didn't come out as an advert.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
No probs. Good luck with the new business venture Spencer.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I might well be VAT registered then and get the flat rate, sounds like I will win on the cashflow. :)
You will only win if you customers are willing to pay you the agreed rate plus VAT.
So if you agree the rate for the job as £100 then if you go VAT registered then you would need to charge £100 + VAT = £120. If they are happy to pay you the £120 for the job then you would benefit from being on the flat rate.
You would probably be on the rate of 10% (transport).
If you sales without VAT are say £40k then registering for VAT your sales will be £48k (£40k + VAT at 20%).
You would pay £4.8k to the VATman (10% x £48) but are £3.2k better off as you have "earned" an extra £8k by being VAT registered compared to not being registered for VAT.
You get a 1% discount in the first year so would pay over 9% off your gross sales as opposed to 10% in your first year.
However if you customers wont pay the extra VAT then you will charge £40k including VAT as you need to take the hit yourself. You would pay £4k (10% x £40k) to the VATman so end up with £36k so therefore shouldnt register for VAT.
As said confirm with your customers they will pay you the agreed rate plus VAT.
I was on flat rate scheme but decided I wasn't actually saving money because (shoot me down if I am wrong) say for instance I had annual sales of £40k, I would charge £48k with Vat therefore making £8k extra - If I was on the 10% scheme I would pay £4800 to Vat and the benefit of £3200 goes to flat rate benefit which I then pay 20% tax on
so on the scheme I would pay£4800 Vat and £8640 in Corporation tax (20% of £43200) or £12528 if I was a sole trader paying 20% Tax and 9% NI
off the scheme I would pay £8000 corporation tax (20% of 40k) or £11600 if I was ST
If I am wrong I will back down but I looked at this for a long time before it sunk in that I wasn't saving anything but actually giving them more!
Hi Sharon, you've not taken into account that the company has an additional £3200 in it's coffers, so yes the corporation tax is an extra £640 but it still leaves a net profit of £2560
Only other thing that needs to be determined is whether the VAT on expenses would come to more than £2560 (I think not in the coach drivers situation)
(Note to self - do not rush when posting, edits made to correct figures and remove ambiguities.
-- Edited by Leger on Friday 28th of August 2015 05:14:40 PM
-- Edited by Leger on Friday 28th of August 2015 05:15:14 PM
-- Edited by Leger on Friday 28th of August 2015 05:16:50 PM
-- Edited by Leger on Friday 28th of August 2015 05:18:15 PM
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
And of course....LTD or not, if your turnover is below the threshold, you don't HAVE to be VAT registered. It never ceases to amaze me how many people think that because they're going to be LTD, they also must be VAT registered.
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Carol Saunders Lady of Ledger Book Keeping Telford, Shropshire
Hi Sharon, you've not taken into account that the company has an additional £3200 in it's coffers, so yes the corporation tax is an extra £640 but it still leaves a net profit of £2560
Only other thing that needs to be determined is whether the VAT on expenses would come to more than £2560 (I think not in the coach drivers situation)
(Note to self - do not rush when posting, edits made to correct figures and remove ambiguities.
-- Edited by Leger on Friday 28th of August 2015 05:14:40 PM
-- Edited by Leger on Friday 28th of August 2015 05:15:14 PM
-- Edited by Leger on Friday 28th of August 2015 05:16:50 PM
-- Edited by Leger on Friday 28th of August 2015 05:18:15 PM
Yes I suppose I hadn't thought of that part of it - still found it more hassle than it was worth and as I am not quite at the registration level I decided to opt out until I have to
Each case needs to be looked at individually. In the coach drivers situation I wouldn't hesitate. In our field I would agree that it's probably not worth it until we have to.
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
