Indirect Tax

tillytots

Please can someone help me, I am trying to work out the sum below the old way, not quite sure how they work out the answer.

The question is: A trader making standard rated (17.5%) supplies, has joined the flat rate scheme. The flat rate percentage applying to his business sector is 8.5%. His VAT exclusive turnover for the quarter is £30,000. What is the VAT due to HMRC for the quarter? The answer is £2,996. They work out the answer as follows (30,000 x 117.5%) x 8.5% = £2,996.

I used to work out by x 17.5%. So am getting very confused as to how they get 117.5%.

Many thanks in advance.

Monsoon

There are 3 possible ways of doing it:

x 1.175
x 117.5%
+ 17.5%

You said x 17.5%. This sum only works out the VAT, it doesn't work out the net+VAT. For that you need one of the 3 methods I listed.

You need the gross (i.e. net + VAT) because flat rate % is applied to the gross, not the net.

jilt

Hi Tilly,

£30,000 x 117.5% = £35250 is merely a different way of saying £30,000 plus 17.5% of £30,000, which is £5250, = £35250

You're taking the £30,00, 100% of it, plus another 17.5%, so putting x 117.5% it's a shorter way of writing it.

Hope you know what I mean.

Nikdoug

Flat rate VAT is based on the Value of Gross sales.

You are given Net Sales and therefore you need to add on 17.5%. You can either times 30,000 by 17.5% and then add this on to 30,000 or just multiply 30,000 by 117.5% (1.175 on a calculator):

30000 x 17.5% = 5250

30000 + 5250 = 35250

or

30000 x 117.5% = 35250

Now that you have gross sales you can calculate the VAT due to HMRC which will be 8.5% of the Gross figure calculated previously:

35250 x 8% = 2996.25

I hope that helps

Nick

Nikdoug

Haha i knew i was taking too long to type.