Autumn Statement 2016

[jamesbrown]

And increasing 14.5 => 16.5 your FRS profit is .2%?

Correct. 16.5% x 1.2 (regular VAT multiple) = 19.8%. Thus, the saving is 20%-19.8%=.2%.

But as CP has pointed out, accountancy fees alone would wipe that out. In short, there is no longer a cost saving (indeed, there is likely to be a net cost), but you could argue that the FRS wasn't intended for this, only to simplify accounting.

[eek]

Correct. 16.5% x 1.2 (regular VAT multiple) = 19.8%. Thus, the saving is 20%-19.8%=.2%.

But as CP has pointed out, accountancy fees alone would wipe that out. In short, there is no longer a cost saving (indeed, there is likely to be a net cost), but you could argue that the FRS wasn't intended for this, only to simplify accounting.

It's also not designed to hit us. We are merely collateral damage here.

[TheCyclingProgrammer]

So the only thing that changes is under FRS we pay 16.5% VAT not 14.5% and the FRS profit we make is reduced. IIRC under FRS we pay 14.5% of the invoice total inc VAT so if I bill £1000+VAT (£200) to my client that makes the VAT 14.5% of £1200 => £174. Your FRS profit is:

(NET * 0.2) - (0.145 * NET * 1.2) => FRS profit percentage is 2.6% currently?

And increasing 14.5 => 16.5 your FRS profit is .2%?

Almost, apart from where you refer to the difference as profit. That isn't your FRS profit. Its surplus income. Which is, as has been repeatedly said, the important bit. The surplus income isn't just free money, its a form of indirect recovery of your input VAT costs and the percentages for each sector are supposed to represent average costs for that sector.

Your true FRS profit is: FRS income - FRS costs = FRS profit.

FRS costs in this case is the input VAT you've paid which you aren't able to directly reclaim on your VAT return.

So yes, somebody who turns over £100k might make a FRS surplus of £2600 (on 14.5%) and if they've incurred expenses that are standard rate for VAT of say, £5000 (net) over the year, they would have paid £1000 in input VAT. So they've actually made £1600 profit from the FRS.

Once the FRS surplus goes down to only £200 on 16.5% at £100k turnover, its easy to see how quickly most of us would make a net loss on the scheme.

[TheCyclingProgrammer]

but you could argue that the FRS wasn't intended for this, only to simplify accounting.

IMO the FRS was intended to simplify accounting without putting businesses in a worse-off position than had they been on the standard scheme, otherwise why bother having different rates for different business sectors?

On that basis, the new measures seem punitive and defeat the whole point of the FRS in the first place as I'm not sure the benefit of simplified accounting outweighs the potential cost of remaining on the scheme, unless you genuinely have very low levels of expenditure.

[eek]

IMO the FRS was intended to simplify accounting without putting businesses in a worse-off position than had they been on the standard scheme, otherwise why bother having different rates for different business sectors?

On that basis, the new measures seem punitive and defeat the whole point of the FRS in the first place as I'm not sure the benefit of simplified accounting outweighs the potential cost of remaining on the scheme, unless you genuinely have very low levels of expenditure.

Not quite. The scheme was being abused, this removes that abuse and there are rules in place which mean that for companies that potentially fall under either of the 16.5% or 14.5% rates guidance is available.

[TheCyclingProgrammer]

The scheme was being abused, this removes that abuse and there are rules in place which mean that for companies that potentially fall under either of the 16.5% or 14.5% rates guidance is available.

By whom? I wasn't abusing the scheme and neither were any of the other thousands of service businesses who don't buy lots of goods who now fall under this "limited cost" rule.

[westtester]

By whom? I wasn't abusing the scheme and neither were any of the other thousands of service businesses who don't buy lots of goods who now fall under this "limited cost" rule.

You're a contractor, so by HMRC's definition you must be abusing some aspect of the tax system.

[TheCyclingProgrammer]

You're a contractor, so by HMRC's definition you must be abusing some aspect of the tax system.

Except this doesn't just affect "contractors". We aren't the only industry sector whose costs are mostly services rather than goods.

[seeourbee]

Well I believe flat rate VAT was set up to "help" small business. From the VAT Notice 733, para 2.2...

2.2 How will it help me?
The main benefits of the scheme are:

simplified record keeping, as you do not have to keep detailed records of sales and invoices
fixed-rate percentages that are lower than the standard rate
it helps manage cash flow

They've pretty much wiped out benefits 2 and 3 now. Thanks for that.

[seeourbee]

Apparently we weren't "abusing" it, we were AGGRESSIVELY abusing it