The Value Added Tax rate we invoice at drops from 17.5% to 15% on 1st December 2008. If, like me, you are on the small business flat rate VAT scheme for IT consultants, then the rate we pay VAT out to HM Revenue and Customs drops from 13% to 11.5% at the same time.
Full details in http://www.hmrc.gov.uk/pbr2008/vat-guide-det.pdf, Page 43, Section 16, Annex E “Flat Rate Scheme – New Percentage Rates”
This is surely bad maths – since the 11.5% is computed on a lower gross value. Seems to me one is now actually 0.05 % better off (£5 per £10K net sales)
Rufus if yout chargint 1000 Net then that 175 vat, you then pay 130 to HMRC,
under the new scheme 1000 Net, then 150 vat you pay 115 to the HMRC,
so your worse off by 1% as before you would have kept 45 piounds per thousand net and now only 35 the only good news is the delay to the revenue splitting changes also when it goes back up the flat rate will probably change to 14% automagically..
The point is you DONT pay 130 to HMRC. You shoud be paying 13% or your GROSS I.e. 13% of 1175
Now yo uwill be paying 11.5% of your new gross 1150
I make it 0.45% of a loss. Still worse off but not by 1%
So much for the promise we wouldn’t be worse off.
We are £4.50 per £1000 worse off. Your business would need to spend £180 per £1000 turnover on VAT’able goods to recoup those losses on VAT no longer paid on those goods and services.
Under the old scheme
1000+17.5% = 1175 gross
1175-13%=152.17 vat to pay back
175-152.17=22.25 to keep
Under the new scheme
1000+15%=1150 gross
1150-11.5%=132.25 VAT to pay back
150-132.25=17.75 to keep
That’s an extra 1% of my gross income gone for the next year or two … and what’s the chance of the rate improving later?
Don’t forget to calculate your flat rate for November and any preceding months in your VAT quarter at 13% and for December and subsequent at 11.5%. If you use 11.5% for the whole period you’ll be under-reporting.
What fun.