VAT FRS new rate

[mudskipper]

It's not defined anywhere that I've seen.

Agreed, I spent some time looking for it this morning. VAT accounting period is the assumption, but that may not be correct.

[Contreras]

This

Proper business can deal with it. It's only you lot that can't cause you seem to think the government was giving you some sort of FRS 'bonus'.

+1.

How often have we read moans about being "out of pocket" because the client will only reimburse net + VAT ?

That said, it is quite obviously a punitive tax grab targeted specifically at "us".

[TestMangler]

+1.

How often have we read moans about being "out of pocket" because the client will only reimburse net + VAT ?

That said, it is quite obviously a punitive tax grab targeted specifically at "us".

Who is this 'us' you speak of Batman ?? I'm not one of 'you lot' any more, but I do enjoy watching the average permatractor try to find ways round the tax grabs that come your way courtesy of "the party of small bizniz, innit"

[eek]

+1.

How often have we read moans about being "out of pocket" because the client will only reimburse net + VAT ?

That said, it is quite obviously a punitive tax grab targeted specifically at "us".

Trust me we aren't the culprits here. They are a certain type of company designed to employ a couple of staff and make the most of the employer ni allowance with a vat reclaim add on.

[Lance]

Trust me we aren't the culprits here. They are a certain type of company designed to employ a couple of staff and make the most of the employer ni allowance with a vat reclaim add on.

Correct.

HMRC likes FRS as it encourages people under the threshold to register. It also is easier to investigate as a simple check against bank statements confirms most of the return.
The issue was an agency (or multiple) setting up LTDs for their 'umbrella staff' and using FRS to make a few more beans. One instance had over 200 LTDs with 2 'employees' in each.

[TheCyclingProgrammer]

Trust me we aren't the culprits here. They are a certain type of company designed to employ a couple of staff and make the most of the employer ni allowance with a vat reclaim add on.

This. Possibly also related the recent case HMRC lost on certain sectors using the 12% rate.

[Contreras]

I agree with the sentiment that FRS was too often viewed purely as 'free profit' ignoring its intended purpose. However the cynic in me thinks this is more than just unintended collateral damage.

What's the rationale in disallowing specific expenses, other than targeting contractors as a whole?

Could the issue not have been dealt with under existing VAT legislation (for close companies)?

[FarmerPalmer]

You're making the common mistake as looking at the bit that HMRC lets you keep on the FRS as a "reward". It was never intended to be that, it was always supposed to provide an indirect way of recovering of any VAT you've incurred on your expenses. It just so happened that if this surplus amount exceeded the amount of VAT you pay during the year you'd make a bit of profit.

The "surplus" amount that the new percentage gives you is simply not enough for most of us to recover the VAT on our costs so we're effectively having to charge VAT to clients whilst not being able to recover the VAT we pay. Its only £200 on £100k turnover which only allows for £1k in VATable expenses before you start losing out.

Examples with £100k net turnover and £10k in net VATable expenses:

Registered on standard scheme:
VAT charged: £20k
VAT paid: £2k
VAT paid to HMRC: £18k
Gross profit: £90k

Registered on FRS under new percentage:
VAT charged: £20k
VAT paid: £2k (not reclaimable)
VAT paid to HMRC: (16.5% * £120k) = £19.8k
Gross profit: £88.2k

Being on the FRS has made you £1800 worse off, because the amount of VAT you've paid exceeds the amount of VAT recoverable on the FRS.

On the standard scheme you will always recover the VAT you've paid, no more, no less.

and if you have (for example) a £150K warchest, getting 1% interest, £1500, you have to pay 16.5% of that to HMRC under the FRS scheme, so another £247.50 to pay.

You would be paying them to be on the FRS scheme, and not recovering anything.

[Fred Bloggs]

and if you have (for example) a £150K warchest, getting 1% interest, £1500, you have to pay 16.5% of that to HMRC under the FRS scheme, so another £247.50 to pay.

You would be paying them to be on the FRS scheme, and not recovering anything.

Nope. There was a ruling a few years back excluding bank interest from flat rate VAT calculations. You pay corporation tax on it though.