VAT Puzzle (pls help)

[ajayjain]

Hi,

Please tell me if I am doing something wrong here.
This is just an example what i am doing

I am an IT consultant and on FLAT rate sheme.
First year is less 1%
My first year is 1 Jan. 2008 to 31 dec. 2008

so my calculations are for the VAT return

Sale Period 01-01-08 to 30-11-08
VAT Charged 17.5%
VAT Payable 13%
First Year VAT 12%

Sale Period 01-12-08 to 31-12-08
VAT Charged 15%
VAT Payable 11.5%
First Year VAT 10.5%

Sale Period 01-01-09 to 31-03-09
VAT Charged 15%
VAT Payable 11.5%
First Year VAT 11.5%



is it correct ?


Thanks

 

[elaine@cheapaccounting]

yes but remember you calculate vat payable on the gross value - see the guide on flat rate

 

[Jenni384]

Nearly there.
Your percentages/ discounts for the dates appear right, but you apply the flat rate percentage to your whole turnover including VAT (and interest received).

Eg, Sales of £10,000 plus VAT £1500 plus bank int received £50 =
£11550, on which you apply the appropriate flate rate percentage, less discount if applicable.

Note the discount applies to your first year of being VAT reg. If you were on the standard VAT scheme before you went flat rate, you will only be able to discount the flat rate by 1% until the anniversary of your VAT reg, not the anniversary of your going on the flat rate scheme.

 

[ajayjain]

Thank you very much for your quick replies.
I am now confident on my calculations.


Regards
Ajay

 

[ajayjain]

2 more questions for you please.

if I have paid more than payable, i can adjust in my next return.
or i say, i paid £100 extra in my last return, so i can pay less £100 this time?

I am paying £1600 every quarter (direct debit)
my bank statement is showing correct but
why on HMRC site, my VAT Statement of installments showing 2 entries on same day for every quarter with a total of £1600 (like £495 + £1105)

 

[AlanR]

Nearly there.
Your percentages/ discounts for the dates appear right, but you apply the flat rate percentage to your whole turnover including VAT (and interest received).

Jenni,

Thats interesting regarding the inclusion of interest. I read the HMRC guidance on this which i found to be as clear as mud so i rang the HMRC VAT Helpline and asked them. Their response was that it doesn't have to be included. Just to be sure i rang again a couple of days later (different operator) and they said the same - interest not included when operating on the FRS.

Don't want to be seen to be doubting the advice you are giving but could you point me in the direction of a website / document that covers this please.

Assuming that i do need to pay VAT on interest earned, i will have to calculate this underpayment which will not be a great deal given the current interest rates and pay this to the VAT people. I seem to recall that i will be able to include this in my next payment with no penalty?

Alan

 

[Zeno]

Jenni,

Thats interesting regarding the inclusion of interest. I read the HMRC guidance on this which i found to be as clear as mud so i rang the HMRC VAT Helpline and asked them. Their response was that it doesn't have to be included. Just to be sure i rang again a couple of days later (different operator) and they said the same - interest not included when operating on the FRS.

Don't want to be seen to be doubting the advice you are giving but could you point me in the direction of a website / document that covers this please.

Assuming that i do need to pay VAT on interest earned, i will have to calculate this underpayment which will not be a great deal given the current interest rates and pay this to the VAT people. I seem to recall that i will be able to include this in my next payment with no penalty?

Alan

Actually, some sources are saying that it is not just interest that should be included. There are some articles on accounting web that are worth a read.

 

[David Griffiths]

Actually, some sources are saying that it is not just interest that should be included. There are some articles on accounting web that are worth a read.

VAT Notice 733 deals with the flat rate scheme and includes this (Page 18)

6.2 Your flat rate turnover is VAT inclusive and includes all the supplies made by your business. This includes all of the following:
- the VAT inclusive sales and takings for standard rated, zero rated and reduced rate supplies;
- the value of exempt supplies, such as rent or lottery commission. You can find out more about
exempt income in Notice 700 The VAT Guide;
- supplies of capital assets, unless they are supplies on which VAT has to be calculated outside the flat rate scheme in accordance with paragraph 12.14; and
- the value of your despatches to other member States of the EC if you are making intra EC supplies. For details see Notice 725 The Single Market.

Note: As exempt and zero-rate supplies are included in flat rate turnover you apply the flat rate percentage to the exempt and zero rate turnover. You may pay more VAT by being on the scheme
if these supplies are a larger proportion of your business turnover than the average for your trade sector.

Interest isn't mentioned specifically, but it is an exempt supply, so this notice suggests that it should be included. Some of the arguments on AW are a bit hopeful (or should that be hopless!) imo

 

[Jenni384]

http://customs.hmrc.gov.uk/channels...E_CL_000345&propertyType=document#downloadopt
Interest isn't mentioned specifically, but it is an exempt supply, so this notice suggests that it should be included. Some of the arguments on AW are a bit hopeful (or should that be hopless!) imo

Thanks David.
Yes, I believe my reasoning was that exempt receipts are to be included in turnover when calculating the VAT flat rate, and that interest receivable is exempt, not outside the scope. Unfair, perhaps, but then it is a tax!

If anyone can point me towards something saying interest doesn't have to be included I will gladly embrace it if it's watertight!!

 

[AlanR]

Jenni, David,

Thanks for the info,

Ok, so it looks like the VAT Helpline is wrong so i will have to calculate the amount owed to the VAT Man from the last year. Can i just include this with my next VAT return at the end of June or do i need to contact the VAT Man to make them aware of this etc?

Regards

Alan

 

[David Griffiths]

or do i need to contact the VAT Man to make them aware of this etc?

Regards

Alan

Only if the amount of unpaid VAT is more than £10,000!

I guess that you might squeeze in under that figure.

Just include it on your next return

 

[KateCB]

If believe that if the differing amount is under £2000, then you just need to account for it on this return - if it is over £2000 then you need to speak to them

 

[David Griffiths]

If believe that if the differing amount is under £2000, then you just need to account for it on this return - if it is over £2000 then you need to speak to them

You were right last July but wrong now. The figure is £10,000.

 

[sheelagh]

6.2 Your flat rate turnover is VAT inclusive and includes all the supplies made by your business. This includes all of the following:
- the VAT inclusive sales and takings for standard rated, zero rated and reduced rate supplies;
- the value of exempt supplies, such as rent or lottery commission. You can find out more about
exempt income in Notice 700 The VAT Guide;
- supplies of capital assets, unless they are supplies on which VAT has to be calculated outside the flat rate scheme in accordance with paragraph 12.14; and
- the value of your despatches to other member States of the EC if you are making intra EC supplies. For details see Notice 725 The Single Market.

Note: As exempt and zero-rate supplies are included in flat rate turnover you apply the flat rate percentage to the exempt and zero rate turnover. You may pay more VAT by being on the scheme
if these supplies are a larger proportion of your business turnover than the average for your trade sector.

Interest isn't mentioned specifically, but it is an exempt supply, so this notice suggests that it should be included. Some of the arguments on AW are a bit hopeful (or should that be hopless!) imo

Isn't the important word here "supply". As nothing is being supplied, interest should surely not be included in the FRS calculation. Unless there is a suggestion that an account holder supplies money to the bank in return for interest.

 

[David Griffiths]

Isn't the important word here "supply". As nothing is being supplied, interest should surely not be included in the FRS calculation. Unless there is a suggestion that an account holder supplies money to the bank in return for interest.

I think that your definition of the word supply is rather different from the use in a VAT context.

 

[sheelagh]

supply: selling or otherwise providing goods or services, including barter and some free provision
supply of goods: when exclusive ownership of goods passes from one person to another

I think that your definition of the word supply is rather different from the use in a VAT context.

I readily accept that I might have failed to locate or correctly interpret specific reference to bank interest as it applies to FRS on the HMRC website.(needle / haystack)
Do you know if it detailed in any particular notice?

Thank you - always prepared to learn something new.