Reply to: Flat Rate VAT - VAT on Bank Interest?

[blacjac]

Appreciate the response Alan, even if it did take nearly 3 years!


Interestingly I don't remember this thread at all -and I have no idea what my question is about as both you and uptons clearly state on page 1 that it should not be included....

(despite the fact that I had this exact conversation with Darren 3 times over the last year and every time he stated that it should be included )

[Nixon Williams]

And what are Nixon Williams and Upton Accountants views on this, as both of them on the 1st page said not to include it?

We do not nor have we ever included bank interest when calculating the Flat Rate VAT.

I see the HMRC guide now confirms this.

HM Revenue & Customs

[minstrel]

I know this is an old thread, but I just thought I'd update it to show that HMRC have clarified the guidance on bank interest on the FRS and it does not need to be included in the turnover.

Here's the link to HMRC website and relevant sections are below.

1.2 What has changed?
This revised notice replaces the April 2011 edition. The amendments reflect the withdrawal of the need to include bank interest in the flat rate turnover.


6.3 What income do I exclude from my flat rate turnover?
You exclude from your flat rate turnover:

■private income, for example income from shares
■bank interest
■the proceeds from the sale of goods you own but which have not been used in your business
■any sales of gold that are covered by the VAT Act, Section 55 - see Notice 701/21 Gold
■non-business income and any supplies outside the scope of UK VAT, and
■sales of capital expenditure goods on which you have claimed input tax.

[blacjac]

And what are Nixon Williams and Upton Accountants views on this, as both of them on the 1st page said not to include it?

[blacjac]

So it does.

What is test 2?

[THEPUMA]

"In his answer, Neil Warren (author of Tolley's VAT planning 2007/08) says:

"In certain situations, the 'private' or 'business' dilemma is clear - for example, interest earned on a business bank account is business income and within the scheme....""

Presumably Neil Warren's opinion is considered to be conclusive, what with him being the author of Tolley's VAT planning 2007/08?

And before I am accused of not putting the full context of the quote in, yes I acknowledge that another respondent had a different viewpoint, but he was very wishy-washy and had nowhere near the same credentials.

I think the following extract from the flat rate scheme guidance has been previously quoted but anyway:-

top ^3.3 How do I work out my total income for Test 2?
Leave out any anticipated sales of capital assets but include all of the following:

the total value of the supplies you worked out in Test 1
the value of any exempt supplies, such as rent, lottery commission or bank interest on a business account and
any other income received or receivable by your business. This includes any non-business income such as that from charitable or educational activities.

Whilst Test 2 is not what we are talking about, this section clearly states that bank interest is an exempt supply.

[blacjac]

It doesn't say that. But that's not the point. The question is simply whether bank interest received is exempt or outside the scope of VAT.

As far as the vat man is concerned it is an exempt supply (from the bank). If that is the case then it *IS* included in the FRS turnover unless it is specifically excluded - and it isn't from the vat notes.

fwiw: here somebody who had the issue raised at inspection.
http://www.accountingweb.co.uk/cgi-b...&h=1019&f=1026

I would certainly agree that it should be excluded, but there is nothing to suggest it actually is.

[Slight tangent, it was precisely the difference between exempt and out of scope which stopped me joining the FRS since at the time most of my income was for foreign clients, whilst I believe these were in fact out of scope rather than exempt I could not get a definitive answer]

So even different departments at HMRC disagree about this? What chance have we got?!?

[ASB]

Please point out the exact place that states Interest received from Bank Accounts is included in your turnover for the purposes of calculating FRS VAT.

The main point that is being missed is that there is a difference between interest your company charges on loans and the interest it receives from bank accounts. Lots of people have posted information on the former being included, nobody has on the later......

It doesn't say that. But that's not the point. The question is simply whether bank interest received is exempt or outside the scope of VAT.

As far as the vat man is concerned it is an exempt supply (from the bank). If that is the case then it *IS* included in the FRS turnover unless it is specifically excluded - and it isn't from the vat notes.

fwiw: here somebody who had the issue raised at inspection.
http://www.accountingweb.co.uk/cgi-b...&h=1019&f=1026

I would certainly agree that it should be excluded, but there is nothing to suggest it actually is.

[Slight tangent, it was precisely the difference between exempt and out of scope which stopped me joining the FRS since at the time most of my income was for foreign clients, whilst I believe these were in fact out of scope rather than exempt I could not get a definitive answer]

[blacjac]

I agree that it wouldn't make you a crap accountant not to realise in the first place, but to continue to argue the case once the anomaly has been brought to your attention is pretty bad.

Please point out the exact place that states Interest received from Bank Accounts is included in your turnover for the purposes of calculating FRS VAT.

The main point that is being missed is that there is a difference between interest your company charges on loans and the interest it receives from bank accounts. Lots of people have posted information on the former being included, nobody has on the later......

[QwertyBerty]

So in the accounts do I state turnover is "the sum of sales (inc. VAT) and gross bank interest received less FRS VAT at 13%" and therefore not bother to itemise bank interest separately in Box 6 in CT600?

QB.

[THEPUMA]

In fairness, thats a bit strong: Not knowing this doesn't make you a crap accountant. I don't think anybody can argue that this information is both obscure and contradictory so its not surprising that even most accountants (the veritable Puma excluded of course) don't know about it.

I agree that it wouldn't make you a crap accountant not to realise in the first place, but to continue to argue the case once the anomaly has been brought to your attention is pretty bad.

[Alan @ BroomeAffinity]

You may not like the answer because it means you owe some money and have a crap accountant but you really need to deal with that.

In fairness, thats a bit strong: Not knowing this doesn't make you a crap accountant. I don't think anybody can argue that this information is both obscure and contradictory so its not surprising that even most accountants (the veritable Puma excluded of course) don't know about it.

[THEPUMA]

Why did you not quote the main headings and the rest of section 4.1?

Is that because section 4 and 4.1 deal with the company charging interest on credit given, not receiving interest from banks?

Because I thought that might confuse you, which it clearly has.

I am bored now. I know that the answer is correct. I have researched it myself and concluded that it is correct. HMRC have said it is correct. My VAT partner has told me it is correct. The combined wisdom of the PCG (on their forum) agree that it is correct. There is no accountant on this forum arguing that it is incorrect (in fact my only reservation is that Just1morethen agrees it is correct - although he did take some convincing).

You may not like the answer because it means you owe some money and have a crap accountant but you really need to deal with that.

[blacjac]

http://customs.hmrc.gov.uk/channelsP...ent#P211_19578

Section 4.1

"Interest received on money deposited is consideration for an exempt supply."

Why did you not quote the main headings and the rest of section 4.1?

Is that because section 4 and 4.1 deal with the company charging interest on credit given, not receiving interest from banks?

4.Credit and related services
top ^4.1 Loans, granting of credit and advances
If in the course of your business for a consideration you

supply credit
advance money in the form of loans
provide overdrafts or other advances
your supply is exempt. The charge you make for a loan, advance or credit facility is usually described as interest. The value of the exempt supply in the grant of credit or loan is the gross interest or other sum received, but not the repayment of capital loaned.

Interest received on money deposited is consideration for an exempt supply.

[Alan @ BroomeAffinity]

[QUOTE=diesel;694786]

Thanks for concluding that. Therefore how does one claim the VAT from the bank?

You don't. You just pay the VAT on your VAT return.

Its not right, but its correct.