Autumn statement - end of VAT flat rate scheme?

[SueEllen]

The problem, as with many things HMRC,is that the FRS was ill-conceived in the first place, and ambiguous and therefore subject to abuse. If it was done properly in the first place, the rates would be nearer the amounts you'd pay in the standard method. The frs was designed to simplify the admin around VAT. The gain we all made on it was simply a by-product.

To be fair if HMRC hadn't got rid of a load of their inspection staff they may have had the knowledge and then been able to alter the rates so it was more realistic per professional grouping.

[VectraMan]

If your are comfortably under the VAT deregistration threshold it might be worth deregistering completely.

Which would also save a load of hassle and paperwork.

That's a fair point. Probably a lot of contractors or other very small businesses only register to get the FRS gain. Maybe in part they're thinking it'll reduce the number of VAT registrations.

[amanwhoisquiet]

Most contractors will lose money if they use the VAT FRS from April

£100000 income + 20%VAT = £100000 + £20000 = £120000
£120000 * 16.5% = £19800 to pay to HMRC

I had a complete misconception as to how this worked. I thought it would have been:

£100k income + 20% VAT = £100k + £20k = £120k

and then instead of paying HMRC back the 20% directly, I'd be paying back £16.5k or 16.5%. Or... in my current year, paying back £13.5k instead of £20k.

Why did I get this wrong? From the djf sums above, the standard (not FRS, assuming no reclaim) 20% setup would have me at a loss instantly by paying HMRC 20% of my gross back, so £24k.

[VectraMan]

The FRS is calculated on the gross (net + 20%) * 14.5%, whereas standard VAT is just the 20%. Not as good a deal as it first appears; I wonder if that was deliberate.

Does anyone know if the first year discount still applies?

[Crossroads]

I had a complete misconception as to how this worked. I thought it would have been:

£100k income + 20% VAT = £100k + £20k = £120k

and then instead of paying HMRC back the 20% directly, I'd be paying back £16.5k or 16.5%. Or... in my current year, paying back £13.5k instead of £20k.

Why did I get this wrong? From the djf sums above, the standard (not FRS, assuming no reclaim) 20% setup would have me at a loss instantly by paying HMRC 20% of my gross back, so £24k.

FRS - you pay the percentage on the VAT inclusive amount, standard you just pay over the VAT collected on HMRC's behalf. Using your figures above:

FRS: 16.5% of £120k = £19.8k
Standard: 20% of £100k = £20k

Obviously on the standard scheme you can reclaim/offset any VAT you have paid on goods and services... so if your account costs you £1200 (inc VAT) each year then you can offset the VAT element (£200). Add in the rest of your likely expenses - IT kit, subsistence, hotels etc and you are better off on the standard scheme.

[youngguy]

FRS - you pay the percentage on the VAT inclusive amount, standard you just pay over the VAT collected on HMRC's behalf. Using your figures above:

FRS: 16.5% of £120k = £19.8k
Standard: 20% of £100k = £20k

Obviously on the standard scheme you can reclaim/offset any VAT you have paid on goods and services... so if your account costs you £1200 (inc VAT) each year then you can offset the VAT element (£200). Add in the rest of your likely expenses - IT kit, subsistence, hotels etc and you are better off on the standard scheme.

What would one have to do (admin wise etc) under the standard fee that they don't have to do under the FRS?

[VectraMan]

What would one have to do (admin wise etc) under the standard fee that they don't have to do under the FRS?

Keep all the receipts mainly. It was 10 years ago, but I used to keep all my petrol receipts (3 a week) and parking receipts so that I could reclaim the VAT part.

[ctdctd]

I was only on the FRS scheme for the extra pennies it offered as I'm well below the turnover threshold.

Subject to confirmation from the VAT man, I am now de-registered.

[Alan @ BroomeAffinity]

I was only on the FRS scheme for the extra pennies it offered as I'm well below the turnover threshold.

Subject to confirmation from the VAT man, I am now de-registered.

The rules don't apply until 01/04/17 so you've chucked away a few quid by deregistering immediately.

[ctdctd]

The rules don't apply until 01/04/17 so you've chucked away a few quid by deregistering immediately.

On the bench at the moment and think it's better to get it done now so that there are no invoicing changes to be done mid future gig.