Reply to: VAT FRS Clarification

[TheCyclingProgrammer]

Where did this advice come from?
An official source?

Gladly show this to my accountant

It's up to you to put all of the pieces together and make sure they fit your situation, but the pieces, as the are...from the same HMRC source referenced earlier regarding EU supplies:

HM Revenue & Customs: Flat Rate Scheme for VAT

Don't include:
services you've purchased from outside the UK that you've had to reverse charge
disbursements - costs you pass on to your clients that meet the necessary VAT conditions
private income, for example income from shares
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 the link below
non-business income and any supplies outside the scope of UK VAT
sales of capital expenditure goods on which you have claimed back the VAT you paid

Important not to confuse zero-rated or exempt supplies with out of scope supplies; zero-rated and exempt still form part of your flat-rate turnover and if the majority of your supplies are zero-rated or exempt (I doubt that is the case for most here) then you are best off out of the FRS.

As to whether your supplies are out of the scope of UK VAT...this is where it gets a bit trickier.

The general rule for services is now:

If you are in the UK and the place of supply of your service is in the UK, you charge and account for VAT according to UK VAT rules.

If you are in the UK and the place of supply of your service is in another EU country, the supply is outside the scope of UK VAT. However, for some supplies, you may need to register and account for local VAT in the country of supply. You will need to check with the tax authority in that country to find out how to treat the services you are supplying.

Certain services have their own special rules and you will need to consult the VAT place of supply of services guide for this, but electronically-supplied services (which IMO most software development and consultancy falls under) is from the UK to the EU (B2B, not B2C) is outside the scope of UK VAT.

Lots of information on this here: HM Revenue & Customs: How to work out your place of supply of services for VAT

[downsouth]

I guess it's worth pointing out that you don't have to include EU or international supplies in your FRS turnover if they fall outside the scope of UK VAT which I would have thought would be the case for a lot of the contractors on here (and certainly, it is now the general rule that services supplied to the EU or outside the UK are outside the scope of UK VAT).

Where did this advice come from?
An official source?

Gladly show this to my accountant

[TheCyclingProgrammer]

how topical this one is, today find myself degregistering from FRS as accountant didn't know about this a few months ago.

Question though is, why should the FRS be an different from the normal VAT method, if you dont need to charge it then the past quarter is NIL VAT

I guess it's worth pointing out that you don't have to include EU or international supplies in your FRS turnover if they fall outside the scope of UK VAT which I would have thought would be the case for a lot of the contractors on here (and certainly, it is now the general rule that services supplied to the EU or outside the UK are outside the scope of UK VAT).

[downsouth]

You must include in your flat rate turnover:


•the value of supplies to other EU countries

how topical this one is, today find myself degregistering from FRS as accountant didn't know about this a few months ago.

Question though is, why should the FRS be an different from the normal VAT method, if you dont need to charge it then the past quarter is NIL VAT

[rsingh]

Hi all
Thanks for all the info. In a nutshell, the accountant has messed up (again). They have acknowledged their mistake and said that an adjustment will be put through in the next vat period. I will also not be receiving any financial penalty.

Once they have completed my annual accounts, I will switch to an accountant that is a bit more competent.

Motto: double check everything.

[Fred Bloggs]

Not just the vat, I would recommend to check the accounts and tax comp too.

Agreed.

[Clare@InTouch]

Also bear in mind first 12 months on FRS you are entitled to 1% discount on whichever cateogory you fall under.

Go careful though as it's first 12 months of VAT registration not FRS registration. If you're already VAT registered for 6 months and then apply for the scheme then the 1% will only be for the following 6 months.



"Discount in your first year of VAT registration
There's a one per cent reduction in the flat rate percentages for your first year of VAT registration. So if you are in your first year of VAT registration, you can reduce the flat rate percentage for your sector by one, until the day before the first anniversary of your VAT registration."

HM Revenue & Customs: Flat Rate Scheme for VAT

[kaiser78]

Also bear in mind first 12 months on FRS you are entitled to 1% discount on whichever cateogory you fall under.

[rmmc]

... And no matter who the accountant was, I'd check anyway, ...

Not just the vat, I would recommend to check the accounts and tax comp too.

[rmmc]

Guess I have to add the interest on to my next vat return then, will basically be 13% of nothing....

And if you have rental income, that needs to be included too.

[dynamicsaxcontractor]

Agreed. The old guidance was confusing and didn't answer the question one way or the other, but HMRC must have finally become fed up of people asking and they issued new guidance which is, for once, clear.

Guess I have to add the interest on to my next vat return then, will basically be 13% of nothing....

[Clare@InTouch]

Must be an older version, I had it confirmed by the Revenue over the phone that interest has to be included.

Agreed. The old guidance was confusing and didn't answer the question one way or the other, but HMRC must have finally become fed up of people asking and they issued new guidance which is, for once, clear.

[Fred Bloggs]

If my accountants were making such basic errors, I'd be finding a new accountant.

You have a valid point, however, on asking around, it seems that the mainstream contractor focussed accountants are pretty much all the same. And no matter who the accountant was, I'd check anyway, so I have decided to stay where I am.

[Lumiere]

We are both right.

HM Revenue & Customs: Flat Rate Scheme: how to complete your VAT Return box-by-box

Must be an older version, I had it confirmed by the Revenue over the phone that interest has to be included.

[Lumiere]

I am about to get a new accountant and want to know my exact position and therefore will get them to recheck my books for my whole trading history.

When you say books, do you mean your own records ? I am asking because the only documentation I get from my accountant are personal tax returns and company annual returns.

I wonder what happens if I need to change them, is it a common practice for accountants to pass the records to the whoever I am moving to, what's the transfer process normally like?

For example I have no idea what my chart of accounts is in between year ends