Flat Rate VAT - VAT on Bank Interest?

[minstrel]

When calculating flat rate VAT turnover for working out total figure to apply the fixed rate percentage to (normally 13%), should bank interest received be included?

I had assumed that as interest isn't included in turnover in the annual accounts it wouldn't be included in the flat rate turnover. My accountant thinks otherwise.

All I've found so far is this on HMRC.

I guess it hinges on whether bank interest is treated as a "supply" (must be included) or "private income" (can be excluded).

Also, does it make a difference if the interest is from deposit bonds? This seems closer to HMRC's example of "income from shares" which is clearly excluded income.

Has anyone come across this before? Googling hasn't helped me so far.

[malvolio]

Don't use Flat Rate myself, so don't take this as gospel, but the flat rate amount is 13% of your gross income from any source including VAT receipts from your clients. Bank interest is income, so is included. The whole idea is to make it simple to operate (just for once!)

If you're confusing private and company income though, you need to do some more reading...

If your accountant can't explain "turnover" and "income" and VAT rules, perhaps you need a new one. To an accountant, these are absolute basics, FFS.

[minstrel]

Thanks for the reply Malvolio.

If you're confusing private and company income though, you need to do some more reading...

I understand the difference between personal and company income. What I don't understand is what HMRC mean when they refer to private income. In the context of the article surely they mean a form of private income related to a company not an individual.

[DaveB]

Interest earned on banks accounts is VAT exempt. You don't have to account for it in VAT returns. It does count towards Corporation tax though.

[ASB]

Don't use Flat Rate myself, so don't take this as gospel, but the flat rate amount is 13% of your gross income from any source including VAT receipts from your clients. Bank interest is income, so is included. The whole idea is to make it simple to operate (just for once!)

If you're confusing private and company income though, you need to do some more reading...

If your accountant can't explain "turnover" and "income" and VAT rules, perhaps you need a new one. To an accountant, these are absolute basics, FFS.

That - famous last words - has to be wrong surely.

Pay 13% of interest received (which is not a supply) to HMCR, cant be surely.

e.g. Million in bank, 50k income, hand over 6.5k VAT..........

[Nixon Williams]

When calculating flat rate VAT turnover for working out total figure to apply the fixed rate percentage to (normally 13%), should bank interest received be included?

I had assumed that as interest isn't included in turnover in the annual accounts it wouldn't be included in the flat rate turnover. My accountant thinks otherwise.(

Bank interest is NOT included in the Flat Rate VAT calculation and it is NOT included in turnover. Interest is shown as a separate entry on the profit & loss account.

Hope this is clear!

Alan

[minstrel]

Interest earned on banks accounts is VAT exempt. You don't have to account for it in VAT returns. It does count towards Corporation tax though.

Yes - interest is VAT exempt, but if it is treated as a VAT exempt supply, then according to the HMRC rules then it needs to be included in the calculation.

Personally, I don't see how interest received can be treated as a supply.

[Darren@UptonAccountants]

When calculating flat rate VAT turnover for working out total figure to apply the fixed rate percentage to (normally 13%), should bank interest received be included?

I had assumed that as interest isn't included in turnover in the annual accounts it wouldn't be included in the flat rate turnover. My accountant thinks otherwise.

You're accountant should know better....interest is never included in VAT calculations including those for the FRS....it's not a taxable supply!

[minstrel]

Bank interest is NOT included in the Flat Rate VAT calculation and it is NOT included in turnover. Interest is shown as a separate entry on the profit & loss account.

Hope this is clear!

Alan

Thanks Alan - that's exactly what I wanted to hear!

And as you are an accountant your opinion carries most weight from all the responses so far!
[Edit] Sorry - equal weight with Darren now![/Edit]

Interestingly, my accoutant now says that they've clarified with HMRC over this issue and HMRC say that Bank Interest Recieved is classified as an "exempt supply" and should therefore be included in the flat rate turnover.

I think my only course of action now is to switch accountants

[Nixon Williams]

Thanks Alan - that's exactly what I wanted to hear!

And as you are an accountant your opinion carries most weight from all the responses so far!
[Edit] Sorry - equal weight with Darren now![/Edit]

Interestingly, my accoutant now says that they've clarified with HMRC over this issue and HMRC say that Bank Interest Recieved is classified as an "exempt supply" and should therefore be included in the flat rate turnover.

I think my only course of action now is to switch accountants

Exempt supplies would be included in the calculation, bank interest is "Outside the scopr" of VAT and so is not included.

If the VAT people have said interest is an exempt supply I would speak to them again and ask to speak to another person and get what they have said in writing and then take it further.

Alan