VAT flat rate scheme

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Mr Bevel
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VAT flat rate scheme

Post by Mr Bevel »

Hi, anyone out there on the Flat rate VAT scheme? Picture framing is not listed, but does it come under a service which would be 12% or Manufacturing- 10% or packaging at 9%. The customs and excise people say "it is not up to us to tell you what you come under, you have to choose what you think most fits your business' - comments greatly appreciated.
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holtons
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Re: VAT flat rate scheme

Post by holtons »

I wouldn't have thought you are a service. I would ask your accountant if you have one.
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Re: VAT flat rate scheme

Post by Gesso&Bole »

Although I believe you could register under the flat rate scheme, I can't see that it would be beneficial to you.

As the wise man above says - get professional advice on this.

I don't personally know of any framers operating under the flat rate scheme, so can't be much more help than that.
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Re: VAT flat rate scheme

Post by Framerpicture »

I think you need to establish which category picture framing comes under, I assume it would come under manufacture

To try and show an example, say you produce a finished frame and material costs were £10.00 + VAT (£2.00)

You sell that for £40.00 inc vat, the vat content is £6.67 , less the input tax of £2.00 = £4.47 payable to vat man

10% flat rate scheme (manufacture) of £40.00 is £4.00

12% flat rate scheme (service) of £40.00 is £4.80

However if you sold this for £30.00, and framing is classified as manufacture, the figure payable to the vat man would be identical on flat rate or normal scheme .


So if your mark ups higher than 300% , and framing is classified as manufacture, you would save money with the flat rate scheme and presumably some book keeping time.

Be interested to know what your accountant says
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Re: VAT flat rate scheme

Post by Graysalchemy »

A good accountant is what you need, they advise you on the correct method of VAT. If I remember when the flat rate system came out my accountant was offering advice to clients as the flat rate scheme was not beneficial in all cases, as the above illustrates.

A good accountant will also be able to advise you on the best course of action regarding tax. I say good accountant as I had a not so good one and changed to one who saved me over £2000.00 in tax in my first year.
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Re: VAT flat rate scheme

Post by China shop »

We have used the flat rate scheme for the last few years, but we are also a gift shop and we combine it with the framing. The gift shop is turning over slightly more than the framing so as that is the dominant one we use the category 'retail not listed elsewhere' . The percentage has just risen to 7.5% from 6.5% and my accountant has told me we are on the borderline of it being worthwhile. So I have to go through the figures and decide if we are going to stay on it.
As has already been stated your profit margin will greatly affect if it is worth it or not.
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Re: VAT flat rate scheme

Post by Mr Bevel »

My accountant didn't know - so he phoned the customs and excise help line and they said they thought picture framing was a service - which would be flat rate 12%. I think it's manufacturing which is: 9.5 and you get a 1% discount for the first year of registration- so that's probably the way to go. I just thought there must be other framers who are on the scheme and wondered what their flat rate was. Thanks for your comments.
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Re: VAT flat rate scheme

Post by Framerpicture »

It would seem obvious to me that if your a picture framer you do manufacture things- but I wouldn't want to have to argue that with HMRC!

With the 1% discount it would seem its worth using this sceme ,if only for the first year.

With VAT payable at 8.5% of turnover, as long as you have a decent mark up you will pay slightly less tax to the revenue -

Remember this scheme is only available to businesses with turnovers of less than £150k
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Re: VAT flat rate scheme

Post by JamesC »

We used flat rate, once on it you can stay on it till turnover is £225k

The idea is to save small businesses money on accountancy fees working out input and output VAT - you just go from turnover and can't reclaim inputs unless you buy a capital item worth over £2,000. From experience the actual VAT amount works out about the same but if you export a lot it is not for you - you can't charge VAT but still have to pay the flat rate on them.

Also if you are planning buying lots of items over £2k next year and with a 1% introductory discount, you could be better off.

It also depends on your type of customer if you do a lot of B2B or public sector contract work where your clients can reclaim VAT - you then add 20% to your invoice without affecting them, while only paying 7-12% to the taxman - kerching. If you mainly sell to consumers this will make you more expensive to them and you may lose sales/profit.

When we registered we were mainly printers and that was a low 7% at the time, retail was 6%. It's odd because we retail online but also produce. I think online retailing is a bit of unrecognised format by authorities at the moment and difficult to judge e.g. also when thinking of planning uses, etc. I definitely do not think picture framing is a pure "service" because that is a very high flat rate and I am sure is envisaged for people with very small material costs who won't have a lot of input VAT.
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Re: VAT flat rate scheme

Post by JamesC »

"It also depends on your type of customer if you do a lot of B2B or public sector contract work where your clients can reclaim VAT - you then add 20% to your invoice without affecting them, while only paying 7-12% to the taxman - kerching. If you mainly sell to consumers this will make you more expensive to them and you may lose sales/profit."

Slight correction on my last post - the above is mainly a benefit when considering whether to go flat rate VAT or no VAT at all. Assuming you are below the compulsory registration threshold of around £70k.
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Re: VAT flat rate scheme

Post by holtons »

Also, be aware that a flat rate percentage is not directly comparable to a normal VAT percentage. Businesses on a flat rate scheme pay VAT on Gross revenue, not on the net revenue.

Let us say you are on the "Manufacturing that is not listed elsewhere" flat rate of 8.5%. Now you invoice a customer for an item at £100 plus VAT giving a gross revenue of £120. On the normal VAT scheme you pay £20.00 VAT whereas on the flat rate scheme you pay 8.5% on £120 = £10.20. So, in reality the comparable numbers in this case are 10.2% versus 20% and not 8.5% and 20%.
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holtons
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Re: VAT flat rate scheme

Post by holtons »

Also, be aware that a flat rate percentage is not directly comparable to a normal VAT percentage. Businesses on a flat rate scheme pay VAT on Gross revenue, not on the net revenue.

Let us say you are on the "Manufacturing that is not listed elsewhere" flat rate of 8.5%. Now you invoice a customer for an item at £100 plus VAT giving a gross revenue of £120. On the normal VAT scheme you pay £20.00 VAT whereas on the flat rate scheme you pay 8.5% on £120 = £10.20. So, in reality the comparable numbers in this case are 10.2% versus 20% and not 8.5% and 20%.
Sorry, I included the first year 1% discount in the calculation. The correct calculation is 9.5% on £120 = 11.4%.
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Re: VAT flat rate scheme

Post by Mr Bevel »

thanks for your comments
fortunately and unfortunately everything is connected
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