VAT Flat scheme and subcontracting.

[2uk]

If you are a Ltd on the VAT Flat scheme and you subcontract work to another Ltd , the end result is that you are losing money isn’t it ?

Example.

Your LTd charges the client 1000 plus 17.5 VAT = 1175.

The subcontractor charges your Ltd 900 plus 17.5 VAT = 1057.7

Under the Flat Scheme you do not reclaim the subcontractor’s VAT ( your input VAT ) but you pay to the HMRC 13% of your gross invoices : 1175 minus 152 ( 13% FRS) = 1022.25

So you end up less in your pocket than what you received from the client .

Is this correct ? Am I correct to think that in this case you do not reclaim your input VAT ?

[Sockpuppet]

Unless you make sure all of the work you subcontract out is over £2000 in whiceh case you can reclaim the vat or make sure the subcontracted out price has sufficent margin in it to soak up the VAT.

If your going to start subcontracting get off the FRS as you are likley to break the 8 to 1 ratio that makes the FRS good.

[2uk]

I will ask the accountant but you might be wrong because:


15.2 Reclaim of VAT on capital expenditure goods
If you use the flat rate scheme, you can reclaim the VAT you have been charged on a single purchase of capital expenditure goods where the amount of the purchase, including VAT, is £2,000 or more.

You deal with these capital expenditure goods outside the flat rate scheme. This means that you claim the input tax in box 4 of your VAT return.

If the supply is:

more than one purchase
under £2,000 including VAT or
of services
then no VAT is claimable, as this input tax is already taken into account in the calculation of your flat rate percentage.




Taken from

http://customs.hmrc.gov.uk/channelsP...ent#P779_60931

[minstrel]

Is this correct ? Am I correct to think that in this case you do not reclaim your input VAT ?

You're right - you'll be out of pocket.

I'd get off the flat rate scheme quick if you are going to be doing a lot of subcontracting.

Also bear in mind you're only allowed to be on FRS if turnover < £150K, so you might exceed this anyway if you're going to be subcontracting out a substantial amount of work.

[DaveB]

If you are a Ltd on the VAT Flat scheme and you subcontract work to another Ltd , the end result is that you are losing money isn’t it ?

Example.

Your LTd charges the client 1000 plus 17.5 VAT = 1175.

The subcontractor charges your Ltd 900 plus 17.5 VAT = 1057.7

Under the Flat Scheme you do not reclaim the subcontractor’s VAT ( your input VAT ) but you pay to the HMRC 13% of your gross invoices : 1175 minus 152 ( 13% FRS) = 1022.25

So you end up less in your pocket than what you received from the client .

Is this correct ? Am I correct to think that in this case you do not reclaim your input VAT ?

If you are going to be subcontracting and receiving VAT invoices from your subbies then you will almost certainly be out of pocket. The £2000 limit only applies to Capital purchases, ie physical goods, not services supplied.

FRS is only of benefit when you have minimal VAT'able expenditure. That said, for most people it is worth doing.