Hi, My client has registered for VAT as he is nearing the threshold. He spoke to HMRC who said he could go on the Flat rate scheme of 4%.
How does this work? He is not going to increase his selling price of his product but absorb this.
Am I right in thinking his price has to include 20% VAT but then he only pays the 4% to HMRC for his sales and he is not allowed to claim VAT back on the purchases like you do with standard VAT scheme?
How will this differ on the VAT return? I submit VAT returns at work under the standard scheme but have never done a Flat rate return.
A separate question now relating to distance selling.
My client sells his product in the UK but also sells in 4 European countries. How do you establish if you are distance selling?
He sends his product out to Amazon fulfillment centers in the European countries and then Amazon takes commission from the sales.
My client is worried about having to register for VAT in these countries and do returns for this also.
Hi You need to confirm the rate first of all (never believe what he has been told over the phone) and also - does this include the discount of 1% he will get in year one?
VAT invoices are issued as if under the standard rate scheme - ie include the VAT at 20%. But yes the rate he pays will be the 4% (or whatever it is), but be aware this is on all sales (so if he has any standard, reduced, zero rated or exempt sales then he pays that rate on ALLof them).
He cannot claim vat back on purchases, except in the case of certain capital assets over £2k (but the total for that capital asset MUST be on one invoice (ie he cannot claim if eg he buys a PC for £1800 and thats one one invoice and the peripherals are £201 on another invoice!)
Have a look at https://www.gov.uk/government/publications/vat-notice-733-flat-rate-scheme-for-small-businesses/vat-notice-733-flat-rate-scheme-for-small-businesses
Re part 2 - can be a complex issue. What is he selling? Have you seen the Amazon agreement? Which countries? What are their VAT D/S thresholds. How much is he selling into those countries? How far are you through digging around HMRC? I would suggest a chat with Les Howard http://vatadvice.org/
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Hi, My client has registered for VAT as he is nearing the threshold. He spoke to HMRC who said he could go on the Flat rate scheme of 4%.
Hi Elaine, what's he selling, children's clothing? If so, he might be better off on the standard scheme. You would need to test it both ways to be sure
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
