Flat Rate Flattens Profits

I started this blog with my favourite scheme the flat rate scheme which is still not used enough, in my opinion, by many traders who could benefit from it.

Having said that, an article in the national press today appears to demonise the scheme for certain retailer's, namely those in the children's clothing sector.

Read the article with caution, as although the article suggests a 'stealth tax' has been introduced on the small children's clothing retailers' using the scheme, in my opinion they are failing to see how well off they still are under this scheme.

As a simple re-cap, the scheme means that no input VAT is recovered, but a specified percentage is paid over to HMRC on sales. 'Sales' for this purpose will include exempt zero rated sales. The 'specified' percentage varies depending on the industry you are in, it was 2% for children's clothing retailers', now it stands at 3.5%.

It must of course feel like these retailer's have been stung, losing 1.5% of their income suddenly. However, there are a couple of points to consider:

1) If the retailer was only selling zero rated children's clothes then the scheme is not for them anyway

2) If the scheme is deemed suitable for them, they have enjoyed one of the lowest flat rates for many years and still do AND they are still using a beneficial scheme. Rather than looking at the glass half full they should focus on the positive angle that they could be worse off if the scheme was scrapped completely.