£2k flat rate vat rule

[css_jay99]

1. You do if you intend to claim the VAT back on your equipment purchase.
2. It does have an effect on the flat rate profit. The profit will be reduced by £333 because you're reclaiming the VAT back in full on your laptop purchase.
3. If you sell it, it must be sold with VAT. If it is simply disposed of, then there could be an accounting and tax adjust under profit/loss on disposal of fixed assets.

I am slightly lost on the impact on the FRS profit so here are some sample figures .....

assume :-
Sales inclusive of VAT for quarter is 50,000 (VAT value is £8333)
Industry FRS Rate 14.5%
VAT on Qualifying Fixed Asset of eligible for reclaim is £333 (i.e. £2000 * 20%)

Normally FRS VAT will be (50,000 * 14.5%) = £7250
Hence profit on FRS will be £8333 - £7250 = £1083

Are you saying that I have to then subtract the £333 from £1083 to arrive at the new FRS profit?. I dont understand this



css_jay99

[Bod]

Are you saying that I have to then subtract the £333 from £1083 to arrive at the new FRS profit?. I dont understand thiscss_jay99

No, that can't be right. The FRS "profit" is based on your sales, not on your costs.

Your "normal" liability to HMRC would be £7,250 - I would think in this case it will be £7,250-£333 = £6,917

You could think of the £333 as "extra" FRS "profit" - but it isn't since your co has already paid that VAT out - it's a refund, not extra profit.

Wait for an accountant to confirm all of this though ;-)

[Craig@Clarity]

The VAT profit you get to retain would be £1,083. This won't change. The VAT reclaim on your laptop of £333 is exclusive of the flat rate VAT profit because on one hand you pay the VAT over to "PCWORLD or whoever" and then on the other hand you simply reclaim it. It doesn't effect the flat rate VAT gain you make.

I should have said:
"2. It doesn't have an effect on the flat rate profit. The amount of VAT you have to pay over to HMRC will be reduced by £333 because you're reclaiming the VAT back in full on your laptop purchase."

Sorry if I misled.

[css_jay99]

The VAT profit you get to retain would be £1,083. This won't change. The VAT reclaim on your laptop of £333 is exclusive of the flat rate VAT profit because on one hand you pay the VAT over to "PCWORLD or whoever" and then on the other hand you simply reclaim it. It doesn't effect the flat rate VAT gain you make.

I should have said:
"2. It doesn't have an effect on the flat rate profit. The amount of VAT you have to pay over to HMRC will be reduced by £333 because you're reclaiming the VAT back in full on your laptop purchase."

Sorry if I misled.

OK , Thanks guys i now understand.

However I am still left with £333 in by VAT liability account in SAGE and dont know how to get rid of it.

I supect that I should have entered VAT liability in sage as £6,917 (£7,250-£333) instead of £7,250 ... but i suspect that might bring its own issue as well


css_jay99