To flat vat rate or not to flat vat rate

[lpop]

Hi,

I've recently incorporated my company as I've got a 6 month contract through an agency. My daily rate is £300 so by my reckoning on the flat vat rate I'd be charging out £39,000 plus vat of £7,800.

Against this my vat rate would be 12% but in the first year 11% so the flat vat payable would be £4,290.

In this transaction, i could potentially be better off by £3,510.

By going down this route I wouldn't be able to claim vat on purchases. As I understand it, I could claim 40p per mile on petrol and with a daily commute of 38 miles I could be sacrificing £1,976 if I go via the flat vat rate.

I also have a car lease, I'm not sure if this Could count towards the purchases at all?

In short, I'm weighing up whether the flat rate is the best route.

Does anyone have any advice on this?

Thanks, please excuse if any of the above is wildly incorrect!

[northernladuk]

What is your accountants advice?

12%?

[TheCyclingProgrammer]

Are you aware of the low cost trader rules starting in April?

[Alan @ BroomeAffinity]

Hi,

I've recently incorporated my company as I've got a 6 month contract through an agency. My daily rate is £300 so by my reckoning on the flat vat rate I'd be charging out £39,000 plus vat of £7,800.

Against this my vat rate would be 12% but in the first year 11% so the flat vat payable would be £4,290.

In this transaction, i could potentially be better off by £3,510.

By going down this route I wouldn't be able to claim vat on purchases. As I understand it, I could claim 40p per mile on petrol and with a daily commute of 38 miles I could be sacrificing £1,976 if I go via the flat vat rate.

I also have a car lease, I'm not sure if this Could count towards the purchases at all?

In short, I'm weighing up whether the flat rate is the best route.

Does anyone have any advice on this?

Thanks, please excuse if any of the above is wildly incorrect!

You've got a few issues:

1) you shouldn't never be 12%
2) the frs VAT is calculated on the gross (VAT inclusive). That's £5148 not £4290.
3) you will be 16.5% on 01/04
4) you've more to concern yourself with than VAT if you lease a car. Benefit in kind for example.

I don't want to sound like NLUK but you've asked your accountant, yeah? You do have an accountant?

[northernladuk]

I don't want to sound like NLUK ?

Why does everyone say that?? :cry:

[Alan @ BroomeAffinity]

Why does everyone say that?? :cry:

Take it as flattery.

[Alan @ BroomeAffinity]

And also the "lease" as you understand it is almost certainly not one. More likely to be a PCP. the first p stands for personal which should give you a clue. It'd need to be in the company name which it isn't as you've only just incorporated fir you to allow the VAT reclaim. And even then you can only claim 50% of it.

[lpop]

Thanks both, I don't have an accountant as yet. I have enquired with Clearsky and gorilla but I'm concerned that if for some reason my contract was cancelled I'd be liable for months of charges with no income to offset them against. As I've been out of work for a couple of months and I'm the only breadwinner we need to watch the money for a little while.

Reading up on the low cost trader info, it mentions vat inclusive expenditure must be greater than 2% of vat inclusive turnover.

Assuming vat inclusive turnover is approx £46,800 then 2% would be £936. Fuel alone would make up a fair chunk of that or am I missing something?

The 12% is for other business support services as my role seemed to come under neither consultancy nor financial services.

I was going to enlist an accountants help but the flat vat rate scheme looked like it could save on administration and make things a bit more simple. Maybe I was wrong on that one!

[Alan @ BroomeAffinity]

Forget the admin that the accountant would save you. Think about the value add. I've already pointed out a few elephant traps you'd do well to avoid. There are more.

Fuel is non-qualifying unless you run a cab company.

Avoid ClearSky. Gorilla seem to get a good name. But there are more of us around. Get someone who knows Freeagent. It'll make your life much easier.

[lpop]

Thanks Alan, the lease is a personal one but as this new role involves travelling much more than we anticipated when I took the job my car will be exclusively used for work and we'll use my wife's car for everything else as we are going to fly over the mileage allowance under the lease.

I was wondering whether I could class the lease as for my business or transfer the agreement from being a personal one to one for the company somehow.

The information I've read about leases and company cars show it's a bit of a minefield so I accept the lease may have to stay a personal one and may not be able to form any part of the company.

Not sure what people's experience on this forum is with regards that though?