The VAT flat rate scheme (http://www.taxpartnersuk.com/news_detail.php?news_id=19) offers taxpayers with the option of using a simplified VAT accounting scheme called the Flat Rate Scheme (FRS) provided their businesses turn over less than £150,000 in a year. The rate of VAT payable to the government under FRS would differ depending on the service sector the business belongs to. Here we compare the relative advantages of FRS over the standard rates for the following services:
- Accountancy or book-keeping
- Architect, civil and structural engineer or surveyor
- Computer and IT consultancy or data processing
- Labour-only building or construction services
- Lawyer or legal services
Currently these services pay a flat rate VAT of 14.50% under the FRS. As the table below would show, for these services, it makes financial sense only if their VAT-able input costs are below 13% of their turnover excluding VAT.
| Input cost % | Flat rate scheme | Standard VAT Scheme | Savings | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Input VAT % | FRS VAT % | Received % | Paid % | Net % | Revenue | Input cost | Net | ||
| 10.00 | 2.00 | 17.40 | 120.00 | 29.40 | 90.60 | 100.00 | 10.00 | 90.00 | 0.60 |
| 13.00 | 2.60 | 17.40 | 120.00 | 33.00 | 87.00 | 100.00 | 13.00 | 87.00 | 0.00 |
| 15.00 | 3.00 | 17.40 | 120.00 | 35.40 | 84.60 | 100.00 | 15.00 | 85.00 | (0.40) |
| 20.00 | 4.00 | 17.40 | 120.00 | 41.40 | 78.60 | 100.00 | 20.00 | 80.00 | (1.40) |
| 25.00 | 5.00 | 17.40 | 120.00 | 47.40 | 72.60 | 100.00 | 25.00 | 75.00 | (2.40) |
| 30.00 | 6.00 | 17.40 | 120.00 | 53.40 | 66.60 | 100.00 | 30.00 | 70.00 | (3.40) |
| 35.00 | 7.00 | 17.40 | 120.00 | 59.40 | 60.60 | 100.00 | 35.00 | 65.00 | (4.40) |
| 40.00 | 8.00 | 17.40 | 120.00 | 65.40 | 54.60 | 100.00 | 40.00 | 60.00 | (5.40) |
| 45.00 | 9.00 | 17.40 | 120.00 | 71.40 | 48.60 | 100.00 | 45.00 | 55.00 | (6.40) |
| 50.00 | 10.00 | 17.40 | 120.00 | 77.40 | 42.60 | 100.00 | 50.00 | 50.00 | (7.40) |
| 55.00 | 11.00 | 17.40 | 120.00 | 83.40 | 36.60 | 100.00 | 55.00 | 45.00 | (8.40) |
| 60.00 | 12.00 | 17.40 | 120.00 | 89.40 | 30.60 | 100.00 | 60.00 | 40.00 | (9.40) |
| 65.00 | 13.00 | 17.40 | 120.00 | 95.40 | 24.60 | 100.00 | 65.00 | 35.00 | (10.40) |
| 70.00 | 14.00 | 17.40 | 120.00 | 101.40 | 18.60 | 100.00 | 70.00 | 30.00 | (11.40) |
