Wednesday, 16 February 2011

Tax Tips - VAT Flat Rate Scheme

Flat Rate Scheme for VAT
The Flat Rate Scheme (FRS) allows you to pay a flat percentage of your turnover to HMRC for VAT and can save you money and time preparing the VAT returns.
If your VAT taxable turnover is less than £150,000, you could simplify your VAT accounting by calculating your VAT payments as a percentage of your total VAT-inclusive turnover. You would still invoice your customers the standard rate of VAT – 20% from 4th January 2011 – but you pay HMRC a reduced fixed percentage.
The fixed percentages vary by the business type and range from 4% to 14.5%, follow this link to HMRC’s website to rate applicable to your business
The scheme is designed to reduce administration although it will only be attractive if it does not result in additional VAT liabilities. The only way to establish whether your business will benefit is to carry out a calculation and comparison of the normal rules and the flat rate rules.


All VAT registered businesses – it is a legal requirement to register for VAT if your turnover reaches £70,000 – will be required to change the standard rate charged to 20% for all sales made on or after 4th January 2011.

Careful planning is required to update systems, tills and shelf prices to effect the change and it is also an ideal time to review pricing and service levels. Your customers may see increased prices resulting from the VAT increase and perhaps inflation, but the impact may be mitigated if you are able to demonstrate an improved product or service.

Act now

Act now to plan for the VAT increase and if you would like assistance you can contact us now.

Tim Hulse
Founder, Piper Hulse Accountants

For information of readers: This material is published for the information only. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.

Tax Tips - Incorporation

Top Tips - Tax
If you business currently operates as a Sole Trader (sometimes known as Self Employment) or a Partnership, it may be possible to save thousands of pounds in Tax. Recently a business with £30,000 profits saved £2,400 tax a year and another with £50,000 profits saved £4,500 tax a year.

How can this be true?

This can be achieved by transferring your business into a Limited Company which offers more flexibility to how you are paid (salary or dividends) and when the payments are made.

Sole Traders and Partners are taxed on their profits as General Income Tax with current rates of 20%, 40% and 50%.

Limited Companies can pay out profits as salaries (which would be taxed as General Income Tax) or dividends to the shareholders (Owners) and dividends do not incur any extra Income tax payable below the basic rate band, currently £37,400 (above the basic allowance, currently £6,475).

Thus a business operating as a Limited Company could choose to pay a large amount of their profits as Dividends rather than salary and save tax.

What are the catches?

The calculations above include all relevant taxes (National Insurance, Income Tax and Corporation Tax), so the savings are realistic but will differ from business to business.

All circumstances are different and to check your own potential tax savings would require you (or a tax advisor) to calculate the tax savings for your particular circumstances.

There are more legal and administrative requirements for a company (e.g. preparing formal accounts for Companies House), and this will add some extra cost but generally only a fraction of the savings.

How can I find out more?

Come and talk to us, we are local, and we will help you with the calculations and discuss whether it is right for your business. There is no charge or obligation for the initial meeting.

Tim Hulse

Piper Hulse
Accountancy & Business Advisory

16a Stafford Street
ST21 6BH

Tel: 01785 850 060