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tadast / switching-to-contracting-uk

A step by step guide of how to start contracting in United Kingdom
https://discord.gg/uteWnwP9CU
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Wrong calculation for the flat rate VAT #19

Closed tmcdos closed 6 years ago

tmcdos commented 6 years ago

In your example, the price for the customer is 10,000 and you add 20% VAT so it becomes 12,000 because 20% of 10,000 is 2,000. HMRC takes 16,5% instead of 20% - so it should be 16,5/20 of 2,000. And this makes 2000 * 16.5/20 = 1650 leaving you a lot more than 20 pounds.

tadast commented 6 years ago

Hey @tmcdos, I'm not sure 2000 * 16.5/20 is correct. I believe you pay VAT on the full amount, 12,000 in this example, so 12,000 * 16.5/100 = 1980 Leaving you with 2,000 - 1980 = £20.

This calculator seems to confirm it:

image

I also had a glance at my recent accounts and I'm pretty sure it matches the formula in the article.

Feel free to re-open the issue if I'm still wrong on this one :)

tmcdos commented 6 years ago

You are right - I completely neglected the fact that the flat rate VAT is over the inclusive amount instead of the standard amount. So in fact you do not gain 3,5% as I initially though - you only gain 0.2%