Should flat rate savings be taxed???

[MikeP]

G'Day folks,

According to my accountants, savings under the Flat Rate Scheme for VAT are added to turnover. i.e. if FRS saved me 2k in VAT payments then my turnover is 2k more than my billing + interest etc.. So I'm getting taxed on money I never had

Is this right? I trawled the HMRC site to no avail.

[boredsenseless]

G'Day folks,

According to my accountants, savings under the Flat Rate Scheme for VAT are added to turnover. i.e. if FRS saved me 2k in VAT payments then my turnover is 2k more than my billing + interest etc.. So I'm getting taxed on money I never had

Is this right? I trawled the HMRC site to no avail.

I believe he is right

[expat]

G'Day folks,

According to my accountants, savings under the Flat Rate Scheme for VAT are added to turnover. i.e. if FRS saved me 2k in VAT payments then my turnover is 2k more than my billing + interest etc.. So I'm getting taxed on money I never had

Is this right? I trawled the HMRC site to no avail.

Bill 100,000 + VAT 17,500. Pay (first year) 12% = 14,100.

So you received 117,500 from clients, passed on 14,100 VAT, and kept 103,400.

Your real turnover, net of VAT is 103,400. Why would you expect to count only 100,000 as turnover, when you have actually kept 103,400?

[ASB]

Your real turnover, net of VAT is 103,400. Why would you expect to count only 100,000 as turnover, when you have actually kept 103,400?

Well it would be nice :-)

Of course to add to the confusion HMCR incentive payments for online filing are excldued from the tax calculation

[meridian]

Bill 100,000 + VAT 17,500. Pay (first year) 12% = 14,100.

So you received 117,500 from clients, passed on 14,100 VAT, and kept 103,400.

Your real turnover, net of VAT is 103,400. Why would you expect to count only 100,000 as turnover, when you have actually kept 103,400?

Because the real turnover net of VAT is still £100k. The difference of £3400 is not turnover, it's VAT that does not have to be returned to HMRC under the scheme.
Whether it is then taxable in the hands of the company doesn't change the nature of it from VAT to Turnover, in the same way that Interest Received is not turnover just because it's taxable.
IMO.

[expat]

Because the real turnover net of VAT is still £100k. The difference of £3400 is not turnover, it's VAT that does not have to be returned to HMRC under the scheme.
Whether it is then taxable in the hands of the company doesn't change the nature of it from VAT to Turnover, in the same way that Interest Received is not turnover just because it's taxable.
IMO.

IMO that's 1 of 2 different sensible ways of looking at it
The other is that (for your company), the turnover is 103,400 and the VAT is 14,100; albeit that for your client the turnover and VAT are tha classic figures.

If you get it from paid invoices, and it does belong to you and not to the VATman, it is turnover even if it doesn't look like it.

(I'm trying - against nature - not to be sarky, so I won't ask, What did you think it was, a Free Lunch?)

[meridian]

(I'm trying - against nature - not to be sarky, so I won't ask, What did you think it was, a Free Lunch?)

Funnily enough, I did

As a matter of interest, is the taxable part the VAT savings on turnover, or the VAT savings on turnover less VAT on expenditure that wasn't able to be claimed?

[ASB]

it is turnover even if it doesn't look like it.

I don't think it is turnover. Turnover is normally defined as "cost of sales net of vat". Check the note in your account to see your definition.

However, it is part of the P+L, It should be included in other income figures. Again quite how this is shown will depend upon the template used in the accounts. This is the line that will sum all your foreing exchanges gains and income received (and HMCR incentive payments of course).

If it is not included in the P+L somewhere then the balance sheet won't.

[VectraMan]

IMO that's 1 of 2 different sensible ways of looking at it
The other is that (for your company), the turnover is 103,400 and the VAT is 14,100; albeit that for your client the turnover and VAT are tha classic figures.

If you get it from paid invoices, and it does belong to you and not to the VATman, it is turnover even if it doesn't look like it.

But.. the FRS is basically striking a deal with HMRC that you won't claim VAT on expenses in exchange for paying them less. If it is to count as turnover, you should subtract the VAT that you would have claimed on expenses, for which you ought to have receipts, which is kind of the point.

It's assumed that there's no overall gain (in the same way that it's assumed there's no overall gain on mileage expenses when there often is). IANAA, so probably talking out of my arse, but that's the way I read it.

[MikeP]

Thanks all for the input. OK, so it makes sense that I have a little more in my pocket than my net billing and interest.
I think I understand it a bit differently now... That £3,400 is actually money I would have claimed back in VAT on my expenses had I been on standard VAT.
Therefore should it NOT be turnover but reduce one's expenses instead?