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FRS VAT Above 2% of invoiced amount or above 2% of received amount

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    FRS VAT Above 2% of invoiced amount or above 2% of received amount

    As we all now know to qualify to stay on current FRS VAT percentage we have to spend above 2% of turnover on goods per quarter

    My question is this :-

    Is that 2% of invoiced amount OR 2% of received amount in each quarter

    I ask because some times there is a quite a difference in turnover from one quarter to the next and also quite a delay on payment for some invoices we've submitted, both of which will make a difference to the 2% threshold figure per quarter, so I need to know which to calculate the 2% threshold figure, invoices submitted during each quarter OR money received into company account during that quarter ?

    Generally the spend on goods will be as and when we need stuff, but it might help to coincide spend on goods with better turnover quarters

    I just need to know is it invoices or money received which counts as 'turnover' as a busy quarter might get paid to us into the next quarter
    Last edited by jk3838; 23 March 2017, 11:56.

    #2
    Originally posted by jk3838 View Post
    As we all now know to qualify to stay on current FRS VAT percentage we have to spend above 2% of turnover on goods per quarter

    My question is this :-

    Is that 2% of invoiced amount OR 2% of received amount in each quarter

    I ask because some times there is a quite a difference in turnover from one quarter to the next and also quite a delay on payment for some invoices we've submitted, both of which will make a difference to the 2% threshold figure per quarter, so I need to know which to calculate the 2% threshold figure, invoices submitted during each quarter OR money received into company account during that quarter ?

    Generally the spend on goods will be as and when we need stuff, but it might help to coincide spend on goods with better turnover quarters

    I just need to know is it invoices or money received which counts as 'turnover' as a busy quarter might get paid to us into the next quarter
    What sort of goods are you talking about?
    The Chunt of Chunts.

    Comment


      #3
      consumables

      materials to be used in model making and paper for the plotter etc

      I can bulk buy in a good quarter if I'm under the 2% threshold

      Quieter quarter, the 2% shouldn't be a problem, (nor should the £250 minimum)
      Last edited by jk3838; 23 March 2017, 12:01.

      Comment


        #4
        Originally posted by jk3838 View Post
        My question is this :-

        Is that 2% of invoiced amount OR 2% of received amount in each quarter
        This can be either. It depends on if you are on an invoice or cash basis.

        Invoice basis is the easiest to operate, as you always use the date the invoices were issued.

        However if your invoices are not settled quickly, then cash basis would be better in terms of your cash flow.

        Most contractors tend to be on an invoice basis however you can switch to cash basis, if this is better for you.

        But whichever you choose to use, then you must use this method for at least 12 months.

        We're all ears!

        Comment


          #5
          This would depend on whether you use the cash based or invoice based schemes.

          If you report VAT based on sales invoiced then you would need to judge relevant goods by the same measure. The same obviously applies for cash based where you would report VAT to HMRC based on cash received rather than sales invoiced.

          You could look at switching to the annual scheme for VAT if your activity seriously fluctuates between quarters.

          Also, be aware of what qualifies as relevant goods.

          Exclusions include; travel and subsistence, capital expenditure, costs associated with motor vehicles, services, anything with mixed business or personal use and anything not related to the principal trade.

          Comment


            #6
            Originally posted by Patrick@Intouch View Post
            Exclusions include; anything with mixed business and anything not related to the principal trade.
            I dare say you are right but where is this bit in the HMRC legislation on FRS VAT?

            I've seen the other conditions mentioned but haven't seen this written anywhere

            Just interested to see a later draft if there is one that I can't find

            Please link if you have time

            Comment


              #7
              Originally posted by jk3838 View Post
              I dare say you are right but where is this bit in the HMRC legislation on FRS VAT?

              Please link if you have time
              https://www.gov.uk/government/public...all-businesses

              In section 4.6, this talks about 'exclusively' and therefore suggests that if a good has a mixed use, this is excluded from 'relevant goods'.
              We're all ears!

              Comment


                #8
                FRS VAT Above 2% of invoiced amount or above 2% of received amount

                Ok so a new laser printer exclusive for the business - then consumables per quarter.

                So say you invoice £25,000 a quarter + VAT

                That's £30,000

                If you are £14% FRS your FRS turnover is:

                £30,000 * 0.86 = £25,800 (so £4,200 to hmrc)

                So you 'keep' £800 a quarter.

                >2% of your FRS turnover is £516


                So... If you spend more than £516 per quarter (on kosher VAT expendables) AND your total spend per year is > £1,000 (which it will be) then you can stay 14% FRS.

                16.5% FRS on your £25k turnover would be (£4,950 to hmrc).

                So in this scenario if you spend >£516 you will keep an extra £750 of VAT per quarter (circa £250 a quarter).

                So that's £1k a year VAT retained, as well as - phenomenally well stocked cupboard of stationary.

                This reminds me of the Northern Ireland wood burning scheme.
                Last edited by PurpleGorilla; 24 March 2017, 16:21.
                http://www.cih.org/news-article/disp...housing_market

                Comment


                  #9
                  Originally posted by Louisa@AardvarkAccounting View Post
                  https://www.gov.uk/government/public...all-businesses

                  In section 4.6, this talks about 'exclusively' and therefore suggests that if a good has a mixed use, this is excluded from 'relevant goods'.
                  My understanding is the 'exclusive use' means goods used exclusively by the company and you should not include goods of 'shared use' between company and personal e.g. using a pack of A4 paper part for office and part for printing off your supermarket shopping list

                  It doesn't mean that you can't have a company doing different types of work and use goods strictly for those various type of work towards your total 2% threshold e.g. if you do some project support office type work, plus some design drawings, plus some prototype model making, then A4 paper, plotter paper, modeling wire and clay used exclusively by the company are all qualifying 'goods' regardless of percentages of type of work and percentages of type of goods

                  As long as you use the FRS percentage for the type of work which generates the greatest percentage of revenue

                  As I say this is just my understanding from the accountant and I haven't seen anything in writing from HMRC to say otherwise
                  Last edited by jk3838; 27 March 2017, 08:28.

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