Reply to: Autumn statement - end of VAT flat rate scheme?

[DoobDude]

Just watched the Autumn Statement and Hammond suggested there would be changes coming (ie. closure) of the flat rate VAT scheme to increase tax revenues.

Which basically means less profit and a lot more admin for most contractors.

Seems to be some confusion over this so here is my simple way of working out the FRS.
Eggs ... Grandma ... etc ...

A1 = Daily Rate (£400)
A2 = VAT (£80)
A3 = Gross Rate (£480)

So in excel use the formula =A1+A2-(A3*0.145) to work out this years VAT you keep per day.
Which is currently £10.40 or 13% of VAT

From April the formula becomes =A1+A2-(A3*0.165) which means you keep 80p or 1% of VAT

[barrydidit]

I will be doing the same after my next return, simply because I have to stay occasionally in hotels.

Expect I'll be doing the same. I had about £4k of VAT inclusive expenditure last year, £150 of which I could say was goods.

[SueEllen]

I'll be leaving the FRS, it's been a good number but due to some idiots exploiting it HMRC have effectively closed it down. My accountant will do the extra work anyway and in any case I don't claim much in the way of expenses.

Don't forget VAT isn't supposed to a way of making a profit, so be thankful for a good few years and accept that we are going back to the way it used to be.

I will be doing the same after my next return, simply because I have to stay occasionally in hotels.

[Waldorf]

I'll be leaving the FRS, it's been a good number but due to some idiots exploiting it HMRC have effectively closed it down. My accountant will do the extra work anyway and in any case I don't claim much in the way of expenses.

Don't forget VAT isn't supposed to a way of making a profit, so be thankful for a good few years and accept that we are going back to the way it used to be.

[northernladuk]

I beg to differ.

Must have missed it in all the noise

[stek]

Do you have an accountant as someone some where seems to have messed things up...

Or some bigger sheets of paper? Using crayons smudges the numbers when writing small.

[TheCyclingProgrammer]

Ok maybe I calculated it wrong...

VAT on invoices = 27,500k
VAT to HMRC = 19,250
Gross VAT saving = £8250
Minus 20% Corp Tax payable (additional profit) = 6,600

Is that incorrect?

You don't say what your FRS percentage is but you need to apply it to the gross turnover including VAT.

If you're comparing with the standard VAT scheme you also need to account for any input VAT you've paid to work out your actual saving. Whatever's left from your flat-rate surplus after deducting input VAT and allowing for CT is your net profit from the scheme.

I feel like I've said this a million times in the last few days!

[TheCyclingProgrammer]

Not one person has got it right yet.

I beg to differ.

[Alan @ BroomeAffinity]

I have just been doing some What Ifs on Intouch's FRS Loss calculator and it seems I might lose so much money from switching to 16.5% that I may well find several thousand pounds worth of essential purchases I need to make next year.

With these numbers anything I buy will be free!

I can't help thinking that there'll be a regulation to prevent this kind of thing too.

[yorkshireman]

FRS Loss Calculator

I have just been doing some What Ifs on Intouch's FRS Loss calculator and it seems I might lose so much money from switching to 16.5% that I may well find several thousand pounds worth of essential purchases I need to make next year.

With these numbers anything I buy will be free!

[Alan @ BroomeAffinity]

Ok maybe I calculated it wrong...

VAT on invoices = 27,500k
VAT to HMRC = 19,250
Gross VAT saving = £8250
Minus 20% Corp Tax payable (additional profit) = 6,600

Is that incorrect?

Yep. The VAT to HMRC should be £23100. It's 14% of gross not net - assuming 14% is you flat rate.

Please don't take this the wrong way but you're making decisions on faulty data. You shouldn't.

[eek]

Ok maybe I calculated it wrong...

VAT on invoices = 27,500k
VAT to HMRC = 19,250
Gross VAT saving = £8250
Minus 20% Corp Tax payable (additional profit) = 6,600

Is that incorrect?

The FRS rateshould be at 14.5% assuming you are a consultant of some form and its 14.5% on your company's total income received including VAT.

VAT on invoices £27,500 so your company's total income including VAT= £165,000.


£165,000*14.5%=£23,925
So your gross VAT saving should have been £3575
Minus 20% Corp Tax payable (additional profit) = £2860

Do you have an accountant as someone some where seems to have messed things up...

[blackeye]

FRS can't make a £7200 difference. That implies your turnover is £300,000 and the limit for FRS is £230,000 (including VAT) so £192,000 excluding VAT.

Ok maybe I calculated it wrong...

VAT on invoices = 27,500k
VAT to HMRC = 19,250
Gross VAT saving = £8250
Minus 20% Corp Tax payable (additional profit) = 6,600

Is that incorrect?

[stek]

Wish people would leave the number crunching off the thread. Not one person has got it right yet.

You have to carry the 1, cross off the 10's and add the difference, cross off the zero's and add the first number you thought off, and that's your star sign?

Am I correct?

[stek]

I've just calculated and my net profits are down £7200pa now due to the new flat rate scheme. Which equates to circa 5k a year net in my pocket - which is a lot of money.
This with the increased in divi taxes mean that there is less than £100 a month difference between the a LTD and umbrella.

With the looming IR35 policy changes, it's not worth it anymore. The heydays are over.

I can't see our accountants rushing to disclose this information...

Eh!!??