I have been registered as flat rate scheme since 2012. At which point I kept 12.5% (working in IT) of my vat invoices.

However in 2017 they changed the laws on the % I believe.

My accountant said I shouldn't be on the flat rate anymore and I'm wondering why its still not viable?

  • 2
    Have you asked your accountant why they've said that? – Tom Revell Dec 6 '18 at 17:14

In 2017, the rate for businesses/sole traders that spend <2% of their income on goods changed to 16.5%, probably because the government felt the 12.5% was giving too much of an advantage.

16.5% is only a tiny amount less than the "normal" VAT rate, as it's calculated on the total invoice amount - for an invoice with a base cost of £100+20% VAT, you'd bring in £120 and pay out £19.80 to the government. If you used standard VAT accounting, then you'd pay out £20 to the government and be able to reclaim VAT on any goods you did buy as part of the business. If more than 1% of your income is going on goods, you'd be better off with the standard approach.

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  • So with the 16.5% I'd be keeping 3.5% of the VAT money, so with £100 wouldn't it be £3.5? I think this is the part that I find the most confusing. – Jamie Hutber Dec 7 '18 at 14:57
  • @JamieHutber No, because it's 16.5% of the total invoice, including VAT. On the same calculation, normal VAT is 1/6th = 16.666% of the total invoice, because £20 of a £120 invoice is VAT. – GS - Apologise to Monica Dec 7 '18 at 15:07
  • Ahhh this does make sense now my friend :) Thank you. – Jamie Hutber Dec 7 '18 at 16:56

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