we decided to join the Flat Rate VAT scheme because it appeared to be simpler and involve us in less work. But I still have to show VAT on my invoices and I still have to seperate out the VAT element on any purchases we make so that the net amount goes down as a business expense. So if I'm doing all this what is the point of the Flat Rate scheme? Or have I got it all wrong?
Hi Geoff,
That's a good point. The Flat Rate Scheme is generally simpler for people who a) use a spreadsheet or pen and paper to calculate the figures on their VAT return; and b) don't need to know exactly how much extra profit (or loss) they are making by being under the scheme.
For users of Solar Accounts, it doesn't make much difference either way.
For users of other accounting products that don't support the flat rate scheme it can be VERY confusing. Here's an example of the complexity of dealing with the scheme in Sage:
http://www.ukbusinessforums.co.uk/forums/showthread.php?t=76022
I'd be willing to bet that most people use the flat rate scheme not because it is simpler but because it increases their profit. See the top of this page for an example:
http://www.solaraccounts.co.uk/help/notes-on-the-flat-rate-scheme-for-vat.php
In this example, the amount payable to HMRC is £110 under the normal VAT rules but £96 under the flat rate scheme. This difference of £14 is pure profit, making the flat rate scheme very attractive - even for Sage users!.
Cheers,
