Summer 2007 Newsletter Content Reverse Charges Beyond The Grave Director's Two Hats IHT Plan Fails VAT And Cash Amnesty International An Inspector Calls Losing A Bet Caring Doctors TAAR Brush Made To Be Broken Flat VAT Safe Deposit Tax On Gas Working Late Composite Companies Excuses, Excuses

Flat VAT The VAT flat rate scheme for small businesses has been around for a few years now, and so far it has produced very few disputes in the VAT Tribunals. It can make life simpler - you don't have to worry about getting proper VAT invoices for your expenses because you don't claim input tax - and you can end up with more money, because you are allowed to keep the difference between the 17.5% output tax you charge to your customers and the flat rate percentage of receipts that you have to pay to Customs. There are possible problems, though. One danger is that people apply the flat rate to the net invoice rather than the gross. If your flat rate is 10% and you charge your customer £100 plus VAT, you are supposed to pay £11.75 to Customs (10% x £117.50 gross), not £10. It's obviously important to get this right, both when operating the scheme and when deciding in the first place that it's right for your business. Another issue is that you apply to go onto the scheme, but you don't agree the rate with HMRC in advance. You have to look at a list of types of business in the Customs Notice and pick the one that sounds most like you. When they come to visit they can decide that you got it wrong. Last year a publican (5.5%) was held to be mainly a restaurant (12%). Recently an ice-cream vendor won an argument that he was a food retailer (2%) rather than a caterer (12%). If you are a bit of one thing and a bit of another, you have to go for the rate which applies to the largest part of your turnover - you don't apply different rates, and you don't take an average. You can see that getting it wrong could be very expensive - HMRC wanted 10% of the vendor's gross takings for the last three years. If you want advice about the flat rate scheme, we will be happy to help you.