March 28th, 2017

How throwing goods away could save you money

 

 

From 1 April there’s a new VAT problem to deal with.

Businesses on the Flat Rate Scheme will have to monitor how much they spend on ‘goods’ each quarter.  If they spend more than 2% then they can carry on using the Flat Rate they use now.  But, if they spend less than 2% they need to use a special rate of 16.5%.

We’ve lots more information about this in our earlier blog here.

In reality you get some crazy results.  Here’s an example:

A business has sales of £24,000 in a quarter (including VAT) and currently pays a flat rate of 12%.  It must spend 2% on goods to keep this rate.

If it spends nothing on goods then the VAT payable is £24,000 x 16.5% ie £3,960.

However, if it spends 2% on goods (£480) then the VAT bill is now £24,000 x 12% ie £2,880.

Spending £480 on goods saves £1,080 in VAT!  You could, in theory drop the goods in the bin on your ay home from the shop and you’d still be better off by £600 (keep the receipt though!)

In practice we’re finding that there isn’t a one size fits all answer to this.  Each business will be different depending on the mix of sales, VAT incurred and the flat rate they’re currently on.

What is for sure is that the Government have made a beautifully simple scheme horrendously complicated.

PS – Some ideas for goods you could buy – printer ink (maybe one of those stupidly expensive colour laser printers), books and magazines (not digital), stationery, workwear (time for a branded sweatshirt!)

 

 

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Freelancers Limited Companies VAT

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Director

John manages a wide portfolio of owner managed businesses and oversees the smooth operation of the firm’s payroll department.

After obtaining his degree in mathematics from the University of Liverpool, John joined Jonathan Ford & Co in 2004 and qualified as a chartered accountant four years later. John likes to keep abreast of developments in tax and accounting and is responsible for the mentoring of junior staff.

Outside of work, John enjoys powerlifting and is a Liverpool FC season ticket holder.

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