Flat Rate VAT - VAT on Bank Interest?

[Robot]

Public Notice 701/49 .. 4.10

4.1 Loans, granting of credit and advances

If in the course of your business for a consideration you

supply credit
advance money in the form of loans
provide overdrafts or other advances
your supply is exempt. The charge you make for a loan, advance or credit facility is usually described as interest. The value of the exempt supply in the grant of credit or loan is the gross interest or other sum received, but not the repayment of capital loaned.

Interest received on money deposited is consideration for an exempt supply.

[Alan @ BroomeAffinity]

Yes I can confirm that under the FRS, VAT does have to be paid on bank interest, unfair as that may seem.

Are you absolutely sure? Seems to fly in the face of what other accountants are saying and it does seen unlikely when it wouldn't be included in non-FRS turnover. Isn't bank interest outside the scope of VAT regardless of the FRS operation?

[THEPUMA]

Are you absolutely sure? Seems to fly in the face of what other accountants are saying and it does seen unlikely when it wouldn't be included in non-FRS turnover. Isn't bank interest outside the scope of VAT regardless of the FRS operation?

Yes I have had our VAT partner check this out. From recollection, bank interest is exempt rather than outside the scope.

[max]

Yes I can confirm that under the FRS, VAT does have to be paid on bank interest, unfair as that may seem.

I can also confirm that I've never known it to be picked up in a VAT review, not that that is a reason not to include it of course!

And why not on "share income"?

[THEPUMA]

And why not on "share income"?

I don't know. I've never had to research it. It may be outside the scope rather than exempt. Or maybe it is included. If I ever need to research it, I'll let you know.

[max]

I don't know. I've never had to research it. It may be outside the scope rather than exempt. Or maybe it is included. If I ever need to research it, I'll let you know.

My accountant(big with loads of contractors LTDs) has confirmed Interest should not be included.

[THEPUMA]

My accountant(big with loads of contractors LTDs) has confirmed Interest should not be included.

Your accountant is wrong.

It is very straightforward. Under the flat rate scheme, you have to pay VAT on your VAT exempt income. Bank interest is VAT exempt income.

[blacjac]

Is my accountant wrong as well?

Or is it poissibly you?

[Alan @ BroomeAffinity]

This is from the VAT Notice 733:

3.2 How do I work out my taxable turnover for Test 1?
For this test, leave out any anticipated sales of capital assets but include all of the following:

the value of your standard rate, zero rate and reduced rate supplies
your turnover from the sale of second-hand goods sold outside the margin scheme. See Notice 718 Margin schemes and
any sales of investment gold that are covered by the VAT Act, Section 55. See Notice 701/21 Gold.
Remember to leave out any VAT when doing this test.

There's no mention of exempt supplies so that would suggest bank interest is not to be included.

[Alan @ BroomeAffinity]

And this if from the same notice

6.2 What must I include in my flat rate turnover?
Your flat rate turnover is all the supplies your business makes, including VAT. This means all of the following:

the VAT inclusive sales and takings for standard rate, zero rate and reduced rate supplies
the value of exempt supplies, such as rent or lottery commission. You can find out more about exempt income in Notice 700 The VAT Guide
supplies of capital expenditure goods, unless they are supplies on which VAT has to be calculated outside the flat rate scheme in accordance with paragraph 15.9 and
the value of any despatches to other Member States of the EC if you are making intra EC supplies. For details see Notice 725 The Single Market.
Note: As exempt and zero rate supplies are included in flat rate turnover you apply the flat rate percentage to the exempt and zero rate turnover. You may pay more VAT by being on the scheme if these supplies are a larger proportion of your business turnover than the average for your trade sector.

----

So I guess that when determining your turnover to apply for the FRS you exclude it but when actually doing your VAT return you include it.

Seems a bit contradictory but then that's the VAT man for you I guess.