IR35 / Flat Rate VAT / Accounts

[OrangeHopper]

I thought the Flat Rate VAT was simply a question of how much you paid the VAT man based on gross sales. The company could keep the saving as retained profit minus any relevant corporation tax.

However, I'm beginning to believe my view was somewhat too simplistic. So I have a few questions for the resident accountants ...

- Are purchases posted gross rather than net of VAT?

- The value of assets is now gross and the VAT is included in the depreciation calculation?

- If the sale is caught by IR35 is the VAT saving regarded as part of the deemed payment? Must the saving be distributed through PAYE?

Could you point me at a learned source that describes how to handle the flat rate scheme from a profit and loss perspective and, in particular, its interplay with IR35 caught income.

Many thanks in advance.

[DaveB]

AFAIK VAT has nothing to do with IR35 and how you are paid. It is a tax regime aimed at the business and not you as an individual.

You charge VAT out at 17.5% of invoice and then pay HMRC x% depending on your business classification of the gross amount. The rest is retained by the business and is then subject to CT as normal. You pay, dividends, expenses etc are then deducted before CT calculations are made and have nothing to do with VAT.

[OrangeHopper]

Exactly what I thought DaveB but I have recently received some stuff that seems to indicate otherwise. I do hope I've just misinterpreted it.

[VectraMan]

- If the sale is caught by IR35 is the VAT saving regarded as part of the deemed payment? Must the saving be distributed through PAYE?

IANAA, but IR35 is specifically about the money you earn from "pseudo employment". If you make a profit from the flat rate VAT scheme then presumably that's completely seperate company profit (just as if you were involved in some other non-IR35 business in addition to contracting), that you pay CT on and can distribute as dividends.

[OrangeHopper]

Couldn't agree more VectraMan but I have just checked some calcs and the VAT saving is being included in the deemed payment.

I haven't got to the logical end of the calcs yet but I have this sneaking suspicion that tomorrow one of our resident accountants is going to be raising his or her eyebrows at me.

[Nixon Williams]

The additional "revenue" generated by the VAT Flat Rate scheme will be included in the IR35 calculations.

Not nice but this is how it works!

Alan

[OrangeHopper]

Thank you for that Alan.

I don't doubt what you say but is there somewhere that says exactly that? Was it declared by in an HMRC guideline or was it just obvious to you black arts guys?

[Nixon Williams]

Thank you for that Alan.

I don't doubt what you say but is there somewhere that says exactly that? Was it declared by in an HMRC guideline or was it just obvious to you black arts guys?

Try this,

http://www.hmrc.gov.uk/manuals/bimmanual/BIM31585.htm

Alan

[OrangeHopper]

Thanks again.

I have to admit to having read that but had not appreciated what was actually meant by the "VAT exclusive" figure. To me that meant the invoiced net figure not the gross minus VAT actually paid.


I thought the FRS was sold as being simpler! In some ways I'm beginning to wish I had stuck with the normal scheme. What appeared to be a simple accounting change has become inordinately more complicated IMHO.

[Nixon Williams]

[QUOTE=OrangeHopper]Thanks again.

I have to admit to having read that but had not appreciated what was actually meant by the "VAT exclusive" figure. To me that meant the invoiced net figure not the gross minus VAT actually paid.


I thought the FRS was sold as being simpler! In some ways I'm beginning to wish I had stuck with the normal scheme. What appeared to be a simple accounting change has become inordinately more complicated IMHO.[/QUO

I agree that the wording is not great, but it does go on to give an example that includes the increased turnover (due to the flat rate). Whilst not everyone is the same it is better for most contractors and your accountant should take this hassle from your shoulders in any case?

Alan