VAT Flat Rate Scheme Question

Question asked by Denis 1 year ago

I have a question regarding the VAT Flat rate scheme. Could you please clarify if my understanding in correct - from the below scenario / calculation example?

SCENARIO: Factors a private limited registered for VAT Flat rate scheme (Retailing not listed elsewhere @ 7.5%)

QUESTIONS: a) My goods Purchase price of 5 GBP. I understand that VAT is not charged by the supplier under reverse charge model - correct? b) The sale price collected from customer is 8 GBP + (VAT @ 20%) 2 GBP. I understand that my VAT Filing @ 7.5% flat rate would be calculated over the sale price of 10 GBP, ie. amounting to 0.75 GBP - correct?

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2 Replies

Hi Denis,

I believe in both cases you do not have any VAT liabilities if both the sale and purchase are subject to DRC.

Tommy

Best answer
1 year ago

I'm trying to understand if: a) I pay the flat rate (7.5% in this scenario) on the sale price b) Do I also need to pay the reverse charge on the purchase price?

The cause of this confusion are the following FRS guidance / statements from HMRC: cannot reclaim the VAT on your purchases (except for certain capital assets over £2,000) Flat Rate Scheme users who receive reverse charge supplies will have to account for the VAT due to HMRC and recover it at the same time on the same VAT Return.

References:

https://www.gov.uk/vat-flat-rate-scheme#:~:text=you%20cannot%20reclaim%20the%20VAT%20on%20your%20purchases%20%2D%20except%20for%20certain%20capital%20assets%20over%20%C2%A32%2C000

https://www.gov.uk/guidance/vat-reverse-charge-technical-guide#:~:text=Flat%20Rate%20Scheme%20users%20who%20receive%20reverse%20charge%20supplies%20will%20have%20to%20account%20for%20the%20VAT%20due%20to%20HMRC%20and%20recover%20it%20at%20the%20same%20time%20on%20the%20same%20VAT%20Return.

1 year ago

Hi Denis,

I believe in both cases you do not have any VAT liabilities if both the sale and purchase are subject to DRC.

Tommy

Best answer
1 year ago

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