Fixed rate VAT rate / Silver

[Darren at Fox-Bartfield]

VAT

As CP says, the FRS is effectively no longer financially beneficial so moving to the traditional method makes sense if you've input VAT to claim. With this and MTD coming on board next year, makes even more sense to start moving to online record keeping with the likes of Freeagent, Xero, etc where you can store the receipts and which will keep track/calculate any VAT on costs. Will save a lot of issues down the line.

[TheCyclingProgrammer]

I think I currently pay 14.5%, with the evil scheme I would pay 16.5% and do more paperwork.

There's certainly no good reason to stay on the FRS on the new rate, financially at least, but what you really need to compare with is moving back on to the standard VAT scheme. This would result in zero profit but it would still give you the same input VAT savings (and possibly more if you buy a lot of hardware that falls below the £2k limit). However it will require a bit more paperwork and receipt keeping.

As you may have guessed, I don't really understand this, but the choice for next year seems to be either:

a) leave the fixed scheme
b) find something to buy so at least you get stuff instead of squandering money paying the vermin.

Correct me if I'm wrong.

A is a valid option, B may not work as anything you buy has to be solely for business purposes.

[hugebrain]

I'm not sure where you are getting the idea that whatever you buy is "zero cost". Do you not incur any input VAT on your normal expenses? Do you know how much ACTUAL profit (i.e. your flat-rate surplus less your input VAT costs) you were making from being on the FRS scheme? The FRS was not a tax-saving scheme, it was a paperwork/bookkeeping saving scheme.

I think I currently pay 14.5%, with the evil scheme I would pay 16.5% and do more paperwork.
So whatever I spend the 2% on that avoids the extra tax is more or less free.

As you may have guessed, I don't really understand this, but the choice for next year seems to be either:

a) leave the fixed scheme
b) find something to buy so at least you get stuff instead of squandering money paying the vermin.

Correct me if I'm wrong.

[TheCyclingProgrammer]

Isn't this backwards? I would have to spend more than 2% to be exempt from their evil scheme?

In which case I might as well spend 2% of my turnover on the silver bars because they will be effectively free if I pay 14.5% instead of 16.5% VAT.

I presume buying supplies to make something from is "qualifying expenditure". if not, one would always be better off buying something that does qualify, since whatever you buy is zero cost after the tax saving.

I'm not sure where you are getting the idea that whatever you buy is "zero cost". Do you not incur any input VAT on your normal expenses? Do you know how much ACTUAL profit (i.e. your flat-rate surplus less your input VAT costs) you were making from being on the FRS scheme? The FRS was not a tax-saving scheme, it was a paperwork/bookkeeping saving scheme.

[teapot418]

Thanks both.

[Michael at BI Accountancy]

Neil, do we know if the 1% first year discount is likely to apply to the new rate?

Ta.
teapot

Yes 1% will still apply in the first year...according to discussions we have had with HMRC earlier this month.

[northernladuk]

Doesn't silver cause a problem with his Vat category as he would be trading significantly in something that isn't his main trade?

[hugebrain]

To be exempt from the new cost trader flat rate scheme of 16.5% you would need to do this each quarter and below is what the qualifying expenditure would need to be:

Less than 2% of your VAT inclusive turnover in a prescribed accounting period, or

Greater than 2% of your VAT inclusive turnover but less than £1000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1000)

The issue here is that capital expenditure is excluded from the qualifying expenditure so wouldn't. Once the consultation period is finished there will be a further update to firstly, if all contractors are going to be targeted or just those that have been abusing the scheme and secondly the full list of qualifying expenditure.

Isn't this backwards? I would have to spend more than 2% to be exempt from their evil scheme?

In which case I might as well spend 2% of my turnover on the silver bars because they will be effectively free if I pay 14.5% instead of 16.5% VAT.

I presume buying supplies to make something from is "qualifying expenditure". if not, one would always be better off buying something that does qualify, since whatever you buy is zero cost after the tax saving.

[Louisa@AardvarkAccounting]

Neil, do we know if the 1% first year discount is likely to apply to the new rate?

Ta.
teapot

When the draft legislation was issued previously, this did not mention any removal of the 1% discount for the first 12 months of your VAT registration. So, in my opinion, this discount will continue to apply for new registrations.

Plus, when HMRC updated the flat rate guidance on their website for the anti-forestalling rules, they kept the 1% discount information in. So, they might be under the same impression!

Comments on the draft legislation finish at the end of Jan 2017 and we'll know for sure shortly afterwards

[teapot418]

To be exempt from the new cost trader flat rate scheme of 16.5% you would need to do this each quarter and below is what the qualifying expenditure would need to be:

Less than 2% of your VAT inclusive turnover in a prescribed accounting period, or

Greater than 2% of your VAT inclusive turnover but less than £1000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1000)

The issue here is that capital expenditure is excluded from the qualifying expenditure so wouldn't. Once the consultation period is finished there will be a further update to firstly, if all contractors are going to be targeted or just those that have been abusing the scheme and secondly the full list of qualifying expenditure.

Neil, do we know if the 1% first year discount is likely to apply to the new rate?

Ta.
teapot

[Neil@Intouch]

To be exempt from the new cost trader flat rate scheme of 16.5% you would need to do this each quarter and below is what the qualifying expenditure would need to be:

Less than 2% of your VAT inclusive turnover in a prescribed accounting period, or

Greater than 2% of your VAT inclusive turnover but less than £1000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1000)

The issue here is that capital expenditure is excluded from the qualifying expenditure so wouldn't. Once the consultation period is finished there will be a further update to firstly, if all contractors are going to be targeted or just those that have been abusing the scheme and secondly the full list of qualifying expenditure.

[hugebrain]

Hi,

My Company is thinking of making some 3D Printed statues made of Silver.

If I were to spend a couple of thousand pounds next year laying up some metal supplies for this venture - silver bars - would this prevent me from being one of those low expenses companies that the government is so keen to destroy?

I was thinking that the tax savings from the flat rate VAT scheme would more than pay for the silver.

Huge

(and yes I could ask my accountant, but that would deprive the assembled multitudes from finding similar cunning plans}