Flat Rate VAT - Think Accountant Is Wrong

[FarmerPalmer]

So you are paying VAT on the VAT payment received???

This is crazy. My income was 10K and I charged VAT on this 10K.

I do not understand how HMRC are expecting me to pay VAT On 11.5K

This is almost VAT on VAT

and any interest your company earns in its bank account as well.

You pay HMRC 10.5% of total income, including for example bank interest.


But even so - you charge £1500 VAT and pay HMRC £1207.50, so you are still up by £292.50. This should more than offset any VAT you spent on purchases, and if it doesn't then you should leave the FRS and go back to standard VAT.

[joey122]

and any interest your company earns in its bank account as well.

You pay HMRC 10.5% of total income, including for example bank interest.


But even so - you charge £1500 VAT and pay HMRC £1207.50, so you are still up by £292.50. This should more than offset any VAT you spent on purchases, and if it doesn't then you should leave the FRS and go back to standard VAT.

Hmmm

The interesting question here then is what would your monthly expenses have to be for you to be WORSE off by being part of FRS

People say that I am 290 pounds better off but remember I am not reclaiming VAT on food and taxis which I would have been able to do else where

[centurian]

So you are paying VAT on the VAT payment received???

This is crazy. My income was 10K and I charged VAT on this 10K.

I do not understand how HMRC are expecting me to pay VAT On 11.5K

This is almost VAT on VAT

Because they are not asking you to pay all of it. They are allowing you to pocket some of it to cover the VAT you pay on goods and services. Most IT contractors are about £1K better off on FRS and this is basically free money (or at least as free as it gets from HMRC).

If you still think it's wrong, then come off the FRS. You'll have to do a stack more paperwork and you won't get to pocket anything, so you'll probably be worse off - but at least you will pay the same amount of VAT you are charging.

Personally I think FRS is one of the best innovations HMRC have done in recent years (although it's not so good under 15%). They're basically saying, "look we know on average you'll be pocketing money, but we'd rather you do that than have to wade through all the extra paperwork."

[centurian]

Hmmm

The interesting question here then is what would your monthly expenses have to be for you to be WORSE off by being part of FRS

People say that I am 290 pounds better off but remember I am not reclaiming VAT on food and taxis which I would have been able to do else where

On 17.5%, which is what it will be shortly...

I think you are £222 better off for every 10K invoiced, so assume 60K, that's £1,332 better off.

So you are better off if the VAT on all your company expenses comes to less than this - that would mean gross (VAT-able) expenses of around 9K per year.

[thunderlizard]

I am not reclaiming VAT on food and taxis which I would have been able to do else where

There's no VAT on taxis, and there's no VAT on most food either.

[centurian]

There's no VAT on taxis, and there's no VAT on most food either.

You sure about that...

http://customs.hmrc.gov.uk/channelsP...yType=document

"1.2 What is liable to VAT?
The fares you charge to your passengers for taxi or private hire journeys are liable to VAT at the standard rate."


Agreed that 'basic' foods are zero rated, but an evening meal in a hotel/restaurant is VAT-able if you stay away from home during the week, so depends on the nature of the OP's expenses.

[thunderlizard]

well I never,
good job I'm not a taxi driver!

[centurian]

well I never,
good job I'm not a taxi driver!

Actually I guess a part time cabbie may choose not to register for VAT, but can still charge the prevailing council approved rate..