Does a VAT rebate count towards profit?

[venderbase]

Any day now I am going to voluntarily register for VAT and use the Flat Rate and Cash Accounting schemes.
I estimate that I should get a rebate of around £5000 whilst only having to pay £600/year to the VAT man.

I am running as a Partnership, so what happens with the rebate?
Must it be spent on the Business or can I keep it?
Does it get added to my end of year profit?

Also, when I register, must I wait 3 months for my first return to make the claim for the rebate on VAT paid over the last 3 years?

Cheers

 

[Fernhurst Solutions Ltd]

Hiya ... the rebate (I presume) will either be made payable to the business, in the form of a cheque or into the business bank account. Accounts are prepared EXCLUDING the VAT, so it doesn't affect your Profit/(Loss).

When you register you'll be notified of your first VAT period - check the rules for reclaiming which can be found here: click

Andy

 

[elaine@cheapaccounting]

As this is a flat rate rebate it will be included in the profit and loss account and will be taxed.

HMRC have two ways to account for the flat rate transactions:

This is from the 2007 notes on SA (may have changed since then!):

If you are registered for the VAT Flat Rate Scheme you may show details of your business income and allowable expenses, either:

• all net of VAT (that is, with the VAT figure taken off) – method 1, or


• all inclusive of VAT – method 2.

If you use method 1:


• you should include any balance on your VAT account that is not to be paid over to us (that is the amount of VAT on your income which exceeds the VAT you have paid on your expenses, plus the payment under the Flat Rate Scheme)


• you should include any balance on your VAT account that you cannot recover from us (that is the VAT on your expenses plus the payment under the Flat Rate Scheme,
minus the VAT on your income).

If you use method 2 include the net payment to us under the Flat Rate Scheme as an expense and account for sales inclusive of vat

 

[venderbase]

Many Thanks for the very informative reply.

 

[Jaydee]

Many Thanks for the very informative reply.

And at 5:26 in the morning too - Elaine, you need to sleep a little longer!

Ahhh - not quite so bad now that I have logged in and the posting time has changed to BST

 

[elaine@cheapaccounting]

And at 5:26 in the morning too - Elaine, you need to sleep a little longer!

Ahhh - not quite so bad now that I have logged in and the posting time has changed to BST

It was 6.26 - and I wet the bed!!!

Only joking of course.

 

[dp0848]

It was 6.26 - and I wet the bed!!!

Only joking of course.

You mean it wasn't 6.26????

 

[Jon123]

As this is a flat rate rebate it will be included in the profit and loss account and will be taxed.

HMRC have two ways to account for the flat rate transactions:

This is from the 2007 notes on SA (may have changed since then!):

If you are registered for the VAT Flat Rate Scheme you may show details of your business income and allowable expenses, either:

• all net of VAT (that is, with the VAT figure taken off) – method 1, or


• all inclusive of VAT – method 2.

If you use method 1:


• you should include any balance on your VAT account that is not to be paid over to us (that is the amount of VAT on your income which exceeds the VAT you have paid on your expenses, plus the payment under the Flat Rate Scheme)


• you should include any balance on your VAT account that you cannot recover from us (that is the VAT on your expenses plus the payment under the Flat Rate Scheme,
minus the VAT on your income).

If you use method 2 include the net payment to us under the Flat Rate Scheme as an expense and account for sales inclusive of vat

I'm slightly confused. so the goverment can tax us on a one off vat rebate of vat already paid? Isn't that paying tax on tax (Though what do you expect from nu lab!)

why is this not the case for normal vat rebates not on the flat rate?

Best Regards
Jonny

 

[SLF]

I didnt realise you could have cash accounting when on flat rate scheme?

Ive just posted a similar question on another thread, but my rebate is on normal vat scheme not flat rate. Is that treated differently then? Someone posted to say it was not treated as income (though I didnt mention that it was or wasnt flat rate as I didnt think it mattered.

 

[venderbase]

hmmmm, now i'm confused.

 

[SLF]

me and you both, venderbase!

 

[venderbase]

I'm guessing that as the VAT I initially paid to my supplier was counted towards my losses in my accounts (as I wasn't VAT registered), when I get it back it must counteract this by being recorded as profit?

 

[Tom McClelland]

I'm slightly confused. so the goverment can tax us on a one off vat rebate of vat already paid? Isn't that paying tax on tax (Though what do you expect from nu lab!)

why is this not the case for normal vat rebates not on the flat rate?

Best Regards
Jonny

This rebate is additional profit, it goes straight to the bottom line. I'm no fan of new labour or this country's punitive taxation regime but in this case I can't see any logic for why the rebate wouldn't be treated the same way as any other part of company profit.

The reason why this wouldn't be the case for normal VAT rebates where for example purchases exceed sales is because in that case the VAT has been sent to the supplier in settlement of their invoice, not gone to the bottom line.

 

[elaine@cheapaccounting]

To clarify - the info I quoted was from HMRC site.

Yes you are taxed on a tax rebate!

That is how the flat rate scheme works.

My initial post detailing how to account for the flat rate vat stands

 

[Tom McClelland]

To clarify - the info I quoted was from HMRC site.

Yes you are taxed on a tax rebate!

That is how the flat rate scheme works.

My initial post detailing how to account for the flat rate vat stands

I know rationality can't always be applied to HMRC or tax, but rationally that seems correct to me. The flat rate rebate is additional profit just as much as any other income, so of course it gets taxed.

 

[elaine@cheapaccounting]

I didnt realise you could have cash accounting when on flat rate scheme?

Ive just posted a similar question on another thread, but my rebate is on normal vat scheme not flat rate. Is that treated differently then? Someone posted to say it was not treated as income (though I didnt mention that it was or wasnt flat rate as I didnt think it mattered.

yes you can see here:

http://customs.hmrc.gov.uk/channels...cument&columns=1&id=HMCE_CL_000345#P540_40207

Ive just posted a similar question on another thread, but my rebate is on normal vat scheme not flat rate. Is that treated differently then? Someone posted to say it was not treated as income (though I didnt mention that it was or wasnt flat rate as I didnt think it mattered

yes it is

 

[Maslins]

I like VAT because logic does tend to apply. Not so with most other taxes.

If you weren't VAT registered at all, your expenses gross of VAT would be allowable for tax, which makes perfect sense, as that's what it cost your business.

With the flat rate scheme, you're kinda VAT registered and kinda not. Ok so you are technically VAT registered, but if you make an extra purchase one month with VAT on it, you can't claim that VAT back...so the gross purchase is an expense. In the same way, any output VAT not paid over (ie profit due to flat rate scheme) is additional taxable income.

 

[elaine@cheapaccounting]

See - this is why it takes us so long to qualify at this game.

 

[venderbase]

OK, I've got it. Pretty simple really. I really will get round to taking the plunge this month (I've been saying that for the last 6 months!). There's just too much waiting to be reclaimed.

Can someone please help claify what I can/cannot claim the VAT back on from the following list. I know its 3 years for capital expenditure or goods still held and 6 months for services, but some i'm not sure about.

Machinery Lease Payments - I'm guessing I can claim on the last 6?
Stationary boxes/files/clipboards etc.. still held?
Current stock held?
Leaflets - 3/4 of which I still have, or can I claim on all?
Domain Registration - Is it a service or capital as I own the domain?
Franchise yearly licence fee - Again, is this 6months or 3 years?
Carraige/Delivery charges on items claiming VAT back on?
Carraige/Delivery charges on stock? (Last 6 months?)


Many Thanks

 

[SLF]

I claimed everything that was service-rendered for the 6m and everything else as capital/goods at 3yrs - tangible/owned in the latter if that makes sense is more or less how I did mine and it was checked and accepted by vat office.

 

[venderbase]

Thats how much I know, it's just the following things I'm not sure on how they fit in.

Machinery Lease Payments - I'm guessing I can claim on the last 6?
Leaflets - 3/4 of which I still have, or can I claim on all?
Domain Registration - Is it a service or capital as I own the domain?
Franchise yearly licence fee - Again, is this 6months or 3 years?
Carraige/Delivery charges on items claiming VAT back on?
Carraige/Delivery charges on stock? (Last 6 months?)

 

[SLF]

Thats how much I know, it's just the following things I'm not sure on how they fit in.

Machinery Lease Payments - I'm guessing I can claim on the last 6?
Leaflets - 3/4 of which I still have, or can I claim on all?
Domain Registration - Is it a service or capital as I own the domain?
Franchise yearly licence fee - Again, is this 6months or 3 years?
Carraige/Delivery charges on items claiming VAT back on?
Carraige/Delivery charges on stock? (Last 6 months?)

I would say it was all 6 months, except im not sure on the leaflets. Cant remember now.