24-10-11, 09:15 AM
VAT Flat rate scheme.
A common VAT error is that businesses apply the flat rate scheme to net turnover when it should be applied to gross turnover. For example if turnover is £100 plus VAT the flat rate percentage should be applied to £120. In Ben's example if net turnover before VAT is £100 " the percentage to keep" is £20 less 14% of £120. This equates to £20 less £16.80 which is 3.2%.
It is still worth having but it is not a margin of 6%.
If a business does not need to register for VAT; it needs to decide if the potential to recoup VAT (either standard rated or flat rate scheme) outweighs the possible lost turnover by virtue of being 20% more expensive to the majority of customers who are unable to reclaim VAT.
A common VAT error is that businesses apply the flat rate scheme to net turnover when it should be applied to gross turnover. For example if turnover is £100 plus VAT the flat rate percentage should be applied to £120. In Ben's example if net turnover before VAT is £100 " the percentage to keep" is £20 less 14% of £120. This equates to £20 less £16.80 which is 3.2%.
It is still worth having but it is not a margin of 6%.
If a business does not need to register for VAT; it needs to decide if the potential to recoup VAT (either standard rated or flat rate scheme) outweighs the possible lost turnover by virtue of being 20% more expensive to the majority of customers who are unable to reclaim VAT.