Leaving Flat Rate Scheme
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  1. #1

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    Default Leaving Flat Rate Scheme

    Does anyone have any advice on leaving the flat rate VAT scheme retrospectively.

    I misunderstood that the changes to the flat rate scheme effectively means I will pay 20% on my turn over without being able to claim back VAT on outgoings.

    I already lodged VAT returns since April under the old rate and HMRC have advised that I should write in to leave the scheme.

    I would like to leave the scheme from 1st of April and claim overpaid VAT back.

    Does anyone have any advice on what I should include in my letter to them to improve my chances of them accepting this?

    Thanks

  2. #2

    Still gathering requirements...


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    I'd recommend asking your accountant and posting this in the right forum.

  3. #3
    eek
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    Quote Originally Posted by Invisiblehand View Post
    I'd recommend asking your accountant
    +1 and you've no chance of doing this retrospectively....

    Oh and if you haven't got an accountant think of all the money you might have saved if you had one so get one...
    merely at clientco for the entertainment

  4. #4

    Should post faster


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    You will not be able to leave the FRS retrospectively.

    HMRC will only allow the change from the beginning of the current VAT period and you will need to notify them of this in writing, either in a letter or by email.

    If the VAT that you incur on costs (excluding capital equipment costing more than £2,000) is significantly more that the VAT that your company will retain under the flat rate scheme then it may be worth considering the switch.

    Under the flat rate scheme you will not be charged 20% against your turnover but will instead pay most of the VAT the you collect on to HMRC. A company invoicing £100,000 and subject to the Limited Cost Trader category (without qualifying capital expenditure) would retain approximately £200 of the VAT that it collects and would benefit from the standard scheme if the VAT incurred on costs exceeded that level.

    The other consideration here is that it will take you longer to check and record all of the VAT on purchases and the time that you spend doing this, or paying an accountant to, should be quantified and weighed against the difference in VAT.

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    Quote Originally Posted by Norther View Post
    Does anyone have any advice on leaving the flat rate VAT scheme retrospectively.

    I misunderstood that the changes to the flat rate scheme effectively means I will pay 20% on my turn over without being able to claim back VAT on outgoings.

    I already lodged VAT returns since April under the old rate and HMRC have advised that I should write in to leave the scheme.

    I would like to leave the scheme from 1st of April and claim overpaid VAT back.

    Does anyone have any advice on what I should include in my letter to them to improve my chances of them accepting this?

    Thanks
    Prefacing this with I'm not an accountant and you should talk to yours but I'm surprised by some things you are saying.

    My understanding is that you should be getting paid a fixed % back from HMRC.

    I.E.

    You normally recover of £1,000 VAT payments and pay £200 of VAT net if you do it all with receipts etc.

    The %s are fixed in flat rate and it works out so you'd get the industry average of VAT recovery payments paid to you. So they'll just pay you £1,000 without bothering with receipts and you end up being net £200 out of pocket still.

    I think the % is based off the industry average vatable cost base, which is relatively lower in software consultancy than say retail. Something like 14%-15%, obviously less than 20%.

    i.e. it's good to be on flat rate if your vatable costs match or are lower than industry average OR the cost/hassle of dealing with the receipts side of things is lesser than the pay-off from standard VAT registration.

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    Quote Originally Posted by Smackdown View Post
    Prefacing this with I'm not an accountant and you should talk to yours but I'm surprised by some things you are saying.

    My understanding is that you should be getting paid a fixed % back from HMRC.

    I.E.

    You normally recover of £1,000 VAT payments and pay £200 of VAT net if you do it all with receipts etc.

    The %s are fixed in flat rate and it works out so you'd get the industry average of VAT recovery payments paid to you. So they'll just pay you £1,000 without bothering with receipts and you end up being net £200 out of pocket still.

    I think the % is based off the industry average vatable cost base, which is relatively lower in software consultancy than say retail. Something like 14%-15%, obviously less than 20%.

    i.e. it's good to be on flat rate if your vatable costs match or are lower than industry average OR the cost/hassle of dealing with the receipts side of things is lesser than the pay-off from standard VAT registration.

    from 1st April everyone is on 16.5% no bands.

    i had fun with HMRC they lost my letter requesting standard accounting. It's only taken them to last week to sort it out.

  7. #7

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    The above post is incorrect. Only people who meet the definition of low cost trader is on the 16.5% rate. Admittedly thatís probably most IT contractors but itís certainly not everyone.

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    TripleIronDad

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    Its okay with the 1% discount for first year. After that I am out.
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