Did you know that you can make more money while charging VAT?


Simon Misiewicz

12th January 2016

Are you charging less than £150,000 per year?

There are many property investors and business owners who are charging their customers/clients 20% VAT but then sadly missing out on the VAT benefit of using the flat rate scheme.

Would you like to make more money while charging VAT?

If you have answered yes then keep reading to see how you could do so.

The benefits of the flat rate VAT scheme are as follows:

– You charge customers/clients 20% VAT
– You pay HMRC a smaller percentage than this amount, which is:

  • 14.5% – Accountancy/bookkeeping
  • 14.5% – Architect, civil/structural engineer or surveyor
  • 12% – Estate agency or property management services
  • 14.5% – Lawyer or legal services
  • 14% – Management consultancy
  • 14% – Real estate activity not listed elsewhere
  • 8% – Retailing pharmaceuticals, medical goods, cosmetics or toiletries
  • 8.5% – Wholesaling not listed elsewhere

If you are providing a professional service then the VAT is charged at 20% as normal. This means that on an invoice of £100,000 you would charge 20% VAT, or £20,000. The great news is that if say, you are a management consultant, you only pay HMRC 14% of the total amount, being £16,800. You have therefore pocketed an additional £3,200 for no extra work at all. This is all completely legal and above board.

The administration of calculating your VAT is also removed, making life a lot simpler.

As a bonus, if you register for VAT then you will also get a first year discount of 1%.

Example of how to implement flat rate VAT

Phil is a property sourcer and he is now earning £100,000 and therefore registers for VAT. He has to pass his 20% in extra costs on to his clients so therefore charges Sarah, a client of his, £5,000 plus VAT, meaning that the total invoice charge is £6,000.

Phil does not have that many expenses to claim as his costs are made up mostly of his time and the mileage claims that he puts against his business. Therefore the flat rate scheme is ideal and he claims at the rate of 13% as his business falls under the real estate activity category (14%) and he gets the first year discount of 1%.

At the end of the quarter he submits his VAT return, paying 13% instead of 20% and therefore keeping 7%.

Here are a few simple steps to help you implement this strategy:

VAT registration (assuming you have not yet registered)

1 – You will need to register for VAT. Use the paper form as the online registration is difficult to use

2 – To register for flat rate VAT you will need to have your VAT number and then complete this form

3 – Submit your VAT return each quarter with the new rates

Please note that the above forms need to be signed by you and sent to HMRC. Please keep all copies of forms that you complete as HMRC can lose paperwork.

Next steps to take advantage of this VAT money-making scheme

If you want to understand how to implement this strategy or to discuss other finance/tax questions then please book some time with us using the below calendar:

If you are looking for a new accountant then please book some time with us using the below calendar. Please note that this booking is to describe our services and will not be used to discuss your personal tax affairs.


Book a call to see how we can help you.