Reclaiming VAT and Corporation Tax under FRS

[80211]

Which FRS VAT category are you using and what is your SIC code?

Limited cost trader....

[ladymuck]

Maybe worth it for year 1 but you'll soon find you'll be losing out

[80211]

That's not 4.5% IIRC.

Well what my accountant has said that limited cost business have to pay 16.5% but in the first its reduced by 1%. If I am charging the client 20% I get to keep the 4.5% difference in the first year.

But my accountant said I have the option to go under standard rate in the future if my expenses start to creep up.

[eek]

Well what my accountant has said that limited cost business have to pay 16.5% but in the first its reduced by 1%. If I am charging the client 20% I get to keep the 4.5% difference in the first year.

You need to speak to your accountant again as it's 16.5% of the total income (including VAT) which works out as 19.8% of the before amount.

So invoice £100
VAT £20

Total received £120

16.5% of £120 = £19.80

So for every £100 of before VAT income you will receive £100.20 after FRS deductions.

Now if the first year it's 15.5% which works out as 18.6% or £101.40 after FRS deduction but it's really not worth the hassle.

Just use Freeagent and let it do all the work for you.

[Amanensia]

You need to speak to your accountant again as it's 16.5% of the total income (including VAT) which works out as 19.8% of the before the Amount.

So invoice £100
VAT £20

Total received £120

16.5% of £120 = £19.80

So for every £100 of before VAT income you will receive £100.20 after FRS deductions.

Now if the first year it's 15.5% which works out as 18.6% or £101.40 after FRS deduction but it's really not worth the hassle.

Just use Freeagent and let it do all the work for you.

This.

The percentages are deliberately published the way they are so people will react precisely as the OP has.

[Maslins]

Well what my accountant has said that limited cost business have to pay 16.5% but in the first its reduced by 1%. If I am charging the client 20% I get to keep the 4.5% difference in the first year.

But my accountant said I have the option to go under standard rate in the future if my expenses start to creep up.

The 16.5% (or 15.5% for first year) is on the GROSS amount, so you don't pocket anywhere near 4.5%.

Simple example:
You invoice £1,000+VAT = £1,200.
15.5% of £1,200 = £186 VAT paid to HMRC.
So in first year, you pocket £14 output VAT for every £1,000 net invoiced. This is before factoring in not being able to reclaim VAT on your purchases.

When you're outside your first year, 16.5% of £1,200 = £198, so you're pocketing just £2 per £1,000 net invoiced. Again this is before factoring in losing ability to reclaim VAT on your purchases.

If your accountant did calculations and told you you'll be 4.5% better off under FRS, I don't see any possible way that could be correct. I would imagine you've probably got the wrong end of the stick.

(EDIT - I'm slow, eek beat me to it!)

[malvolio]

You need to speak to your accountant again as it's 16.5% of the total income (including VAT) which works out as 19.8% of the before the Amount.

So invoice £100
VAT £20

Total received £120

16.5% of £120 = £19.80

So for every £100 of before VAT income you will receive £100.20 after FRS deductions.

Now if the first year it's 15.5% which works out as 18.6% or £101.40 after FRS deduction but it's really not worth the hassle.

Just use Freeagent and let it do all the work for you.

And the 20p is liable for CT of course...


Sorry -

[eek]

And the 20p is liable for CT of course...


Sorry -

Only if it's not spent...

But I really don't see what the benefit of the FRS is for most people - Freeagent does all the hard work for you so there is zero point being on the FRS as a contractor even if you had zero expenses / expenditure.

Heck you will probably be better off if your only expenditure is your accountants fees (which is why I don't think the OP has actually asked his accountant).

[TheCyclingProgrammer]

And the 20p is liable for CT of course...


Sorry -

It’s taxable income sure, but input VAT on the FRS also becomes tax deductible. For most people the FRS surplus on the limited cost trader rate will be wiped out entirely by the input VAT on their costs meaning it will be a net loss in that respect. Even accountancy fees will likely incur more input VAT than what you’d get on the FRS.

[wattaj]

Limited cost trader....

No... look once again at the question. Read it in the context of the subsequent answers. You are wrong. And you are being poorly advised given the information that you have shared thus far.

Still think that you're a troll.