FRS VAT changes

[SteelyDan]

Serious Q: Can someone explain (in clear/basic Engish) [hopefully without links to lengthy documentation, & without the usual sarcasm please from certain quarters] what the impact is of these expected changes please?

As Ltd Co, FRS registered, I currently pay 14%, which is to due increase across the board to 16.5%...ok I get that bit.
So, the 'benefit' which I previously gained (6%) will reduce by 2.5% to 3.5%...ok I get that bit too.

There seems to be a link to expenses which is where I'm getting confused: my expenses mainly comprise mileage, parking, myco phone, subsistence, printer consumables etc etc. Could be c.1k/month owing to commuting distance.

I don't make any large purchases as such where I claim the input tax back (are these the items which are in excess of £2k?). I don't think I've ever done that, or felt the need to, in 10 years.

So, with this potted description can someone tell me whether I should stay on FRS, or not, regardless of the planned % increase? I genuinely don't get it, and yes (before that *** comes on) I've asked my accountant but it's by email & he's not fully explaining it to the point where I completely understand.

Thanks.

PS: I did use the search box top right for 'VAT' and also 'FRS', but nothing came up.

[b r]

Talk with you accountant.

I've been talking with ours and on first conversation he said it'll be 16.5% so I suggested he look at our accounts (SJD spreadsheet ) and he's come back with, you'll be fine you spend enough on the right stuff.

[SueEllen]

Phone your accountant up instead of emailing. Often speaking to people gets better information.

Before you do calculate how much you approximately spend on VAT a quarter and the amount you spend in total per quarter on those items.

[northernladuk]

Forget the search box. It's rubbish. Use to Google method if you need to search the forums.

[pr1]

Serious Q: Can someone explain (in clear/basic Engish) [hopefully without links to lengthy documentation, & without the usual sarcasm please from certain quarters] what the impact is of these expected changes please?

As Ltd Co, FRS registered, I currently pay 14%, which is to due increase across the board to 16.5%...ok I get that bit.
So, the 'benefit' which I previously gained (6%) will reduce by 2.5% to 3.5%...ok I get that bit too.

There seems to be a link to expenses which is where I'm getting confused: my expenses mainly comprise mileage, parking, myco phone, subsistence, printer consumables etc etc. Could be c.1k/month owing to commuting distance.

I don't make any large purchases as such where I claim the input tax back (are these the items which are in excess of £2k?). I don't think I've ever done that, or felt the need to, in 10 years.

So, with this potted description can someone tell me whether I should stay on FRS, or not, regardless of the planned % increase? I genuinely don't get it, and yes (before that *** comes on) I've asked my accountant but it's by email & he's not fully explaining it to the point where I completely understand.

Thanks.

PS: I did use the search box top right for 'VAT' and also 'FRS', but nothing came up.

That "benefit" you think is 6% is actually 3.2% (on 14% FRS), coming down to 0.2% (at 16% FRS)

net invoice =X
gross invoice =1.2X
(VAT received =0.2X)

VAT you pay tax man (14% FRS) = 0.14*1.2*X =0.168X
VAT "benefit" (14%) = 0.2X-0.168X =0.032X (3.2%)

VAT you pay to tax man (16.5% FRS) = 0.165*1.2*X =0.198X
VAT "benefit" (16.5%) = 0.2X-0.198X = 0.002X (0.2%)

Roughly speaking, assuming ~£100k turnover, if you pay anything inc. vat to a total of around £1000 you'll be financially better off leaving the FRS (think accountancy fee/phone/consumables)

[TheCyclingProgrammer]

Roughly speaking, assuming ~£100k turnover, if you pay anything inc. vat to a total of around £1000 you'll be financially better off leaving the FRS (think accountancy fee/phone/consumables)

That's about the sum of it. Though as somebody else pointed out on another thread, it's actually slightly higher when you consider that whilst you cannot reclaim input VAT on the FRS, the gross cost inc VAT is used when calculating your corporation tax bill.

So £120 inc VAT expense would save you an extra £4 in corporation tax vs the net cost of you were on the standard scheme.

But yes, about £1k in expenses, or slightly more due to the above, is the cutoff.

[Lance]

If you don't want a long explanation here's a summary.

you don't understand it correctly.

If you have any expenses (which you have) then just switch to normal VAT.....
Or stay with FRS for reduced paperwork and lose some money.