Reply to: Flat Rate VAT - Think Accountant Is Wrong

[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..

[thunderlizard]

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

[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]

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]

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.

[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."

[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

[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.

[thunderlizard]

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

You make a sale £10,000 + VAT@15% = £11,500.

You have to pay 10.5% of the £11, 500 to customs, i.e. £1207.50

So of the £1500 VAT the government kindly allowed you to stick on top of your bill, you only have to pass on £1207.50 and the remaining £292.50 goes in your company's back pocket to help with your expenses. What's so crazy about that?

Example here if you still don't believe your accountant:
http://www.hmrc.gov.uk/manuals/bimmanual/bim31585.htm

[Maslins]

This is almost VAT on VAT

Yup, but dey's da rulez.

Same with stamp duty on VATable commercial property. Buy a property for £1m, add VAT on, then pay stamp duty at 4% on the VAT inclusive price of £1.15m even if you're able to reclaim the VAT at a later date. Go figure.

[joey122]

WHS

Whoever said the FRS VAT payable is (in OP's case) = 11K5 x 10.5% is correct!

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

[ctdctd]

erm....?

WHS

Whoever said the FRS VAT payable is (in OP's case) = 11K5 x 10.5% is correct!

[stillooking]

Looks right if you're in your first 12 months and on the 10.5% rate.

BTW If there is an error your accountant should pick it up at your year end and as long its under a certain amount, £2k i think - then you can just send them a cheque for the difference, or ask for a refund if its in your favour - anything over that I think they investigate more carefully.

I continued to apply the discounted rate after the 12 mths, the accountant didn't pick it up and HMRC came round, did a check and found that I'd underpaid... They asked for money which was rather annoying. It's a common mistake, but HMRC don't remind you,so am assuming it's a bit of job creation by civil servants (force of darkness).

Also noticed that the current flat rate doesn't suit my company spend and I don't make a bean on the vat difference.

[jmo21]

If you are an IT Contractor, the FRS VAT amount is 11.5% on £11.5k unless you are in your co's first 12 months of existence in which case a 1% discount is applied to make 10.5%. The FRS percentage is applied to the total income including VAT so your accountant is wrong.

Get a signed declaration from them they'll pay your fine if investigated by HMRC!

A lot of people are playing fast and loose regarding the FRS VAT percentage and operating on a percentage of less than 11.5% even where the discount isnt applicable.

Up to them but if they get investigated by HMRC...............................

erm....?

[grey_lady]

Looks right if you're in your first 12 months and on the 10.5% rate.

BTW If there is an error your accountant should pick it up at your year end and as long its under a certain amount, £2k i think - then you can just send them a cheque for the difference, or ask for a refund if its in your favour - anything over that I think they investigate more carefully.