VAT Flat Rate Scheme Update

[css_jay99]

We're looking at each case individually but it looking like a choice between (a) stay on FRS at 16.5% for convenience if nothing else; (b) switch to standard if your VAT reclaimable expenditure exceeds c£2,000 per year; or (c) de-register for VAT if your turnover is less than £81k. A and C are for those who wish to eliminate the ballache of keeping receipts and recording the VAT, and B is for those who wants to save a couple of quid.

why £2k?

you mean expenditure on Fixed asset over £2k?..... where you get vat portion back?

[TheCyclingProgrammer]

why £2k?

He's referring roughly to the point at which you'll be paying more input VAT than what you recover indirectly on the FRS (due to the much smaller amount you get to keep).

I think its probably less than this. On a reasonable turnover of £100k + VAT you'll only have a FRS surplus of £200 - i.e. enough to cover the VAT on £1000 of expenditure. If your VATable expenditure exceeds this significantly then you'll be better off on the standard rate scheme. If its only slightly over you might consider staying on the FRS anyway.

Its not an exact calculation because its not accounting for the corporation tax saving you make on the VAT you pay when on the FRS (as the gross amount reduces your taxable profits) but its close enough.

[psychocandy]

My accountant has advised that, if you're in the first year with the 1% then deffo stay flat rate. If not, its still not worth the hassle for a few quid. They reckon about £100-£120 a year max.

Not so sure. Accountants fees are allowed I understand. What about mobile phone charges?

Tempted to do it. £100 is £100 after all and I cant see it being too much hassle. I reckon the accountant is not keen because its extra work for them :-)

After all, I sign up for JSA for £75 a week and thats lots of hassle....

[SueEllen]

My accountant has advised that, if you're in the first year with the 1% then deffo stay flat rate. If not, its still not worth the hassle for a few quid. They reckon about £100-£120 a year max.

Not so sure. Accountants fees are allowed I understand. What about mobile phone charges?

Tempted to do it. £100 is £100 after all and I cant see it being too much hassle. I reckon the accountant is not keen because its extra work for them :-)

After all, I sign up for JSA for £75 a week and thats lots of hassle....

They are all services.

[DaveB]

My accountant has advised that, if you're in the first year with the 1% then deffo stay flat rate. If not, its still not worth the hassle for a few quid. They reckon about £100-£120 a year max.

Not so sure. Accountants fees are allowed I understand. What about mobile phone charges?

Tempted to do it. £100 is £100 after all and I cant see it being too much hassle. I reckon the accountant is not keen because its extra work for them :-)

After all, I sign up for JSA for £75 a week and thats lots of hassle....

Nope, accountants fees don't count. Advice from my accountant below:

Businesses using the Flat Rate Scheme must perform an additional test each quarter to confirm first if they meet the criteria as a limited cost trader. A limited cost trader is defined as one whose gross expenditure on relevant goods is either:
· less than 2 % of their Vat inclusive turnover or
· greater than 2% but less than £1000 per annum.
Goods do not include:
· any services - which is anything that isn't goods
· expenses like travel and accommodation
· food and drink eaten by yourself or your employee(s)
· vehicle costs including fuel unless you are in the transport business using your own, or a leased vehicle
· rent, internet, phone bills and accountancy fees
· gifts, promotional items and donations
· goods you will resell or hire out unless this is your main business activity
· training and memberships
· capital items for example office equipment, laptops, mobile phones and tablets

So you can't count any of the above as part of your VAT expenditure when determining your FRS status.

[zoomfwd]

I got the same advice as PC (from one of the big contractor accountants) -
[INDENT][/Our advice
Traders that are using the Flat Rate Scheme and are still within the first 12 months of VAT registration will still be eligible for the 1% first year discount. This remains the most tax efficient and simplistic scheme to calculate your VAT liability.

If you have been a user of the Flat Rate Scheme, have been VAT registered for more than one year and will be deemed a limited cost trader, leaving the scheme and accounting for VAT under the standard calculation method can produce a relatively insignificant sum of between £78-£128 per annum (based on turnover of between £60k-£90K per annum and reclaiming input VAT on accountancy fees alone). To reclaim input VAT on eligible purchases under this method you will be required to analyse and provide VAT receipts to support each purchase. This of course will require your additional time for potentially minimal benefit, dependent upon your level of expenditure eligible for reclaim, From the clients that we have spoken to so far, they have decided to stay on our current arrangement, but of course it is for you to decide in regards to your own personal circumstances.

INDENT]

Seem to be 'advising' us to stay in the FRS but forgot to mention that you should consider other vatable expenses such as mobile phone, insurances, travel, IT equipment etc which for most of us make the benefit of leaving FRS worth a lot more than the 'relatively insignificant sum of between £78-£128 '

[TheCyclingProgrammer]

It's quite a simple calculation. Add up how much you pay in a typical year in input VAT. Subtract the amount you'll be making on the FRS as a low cost trader (a few hundred quid on a £100k turnover). What's left is how much you stand to lose by staying on the FRS vs the standard scheme (where you will recover all of your input VAT costs).

[zoomfwd]

It's quite a simple calculation. Add up how much you pay in a typical year in input VAT. Subtract the amount you'll be making on the FRS as a low cost trader (a few hundred quid on a £100k turnover). What's left is how much you stand to lose by staying on the FRS vs the standard scheme (where you will recover all of your input VAT costs).

Yes - understand that

The point I was trying to make was that I thought that this was poor advice from my accountant - to those contractors who aren't very clued up on such things (of which there are many) they are likely to read that advice, do nothing and remain on the FRS when they would be much better off leaving it

[FlashingTwelve]

I've been considering buying a top of the line Montblanc pen and a business folder & stationery from smythsons. They'll be great in meetings.

Would these count as relevant goods?

[northernladuk]

I've been considering buying a top of the line Montblanc pen and a business folder & stationery from smythsons. They'll be great in meetings.

Would these count as relevant goods?

Duality of purpose much?