FLAT RATE SCHEME

[miss_moneypenny]

I have client who has been trading for 18 months, and has just voluntarily registered for VAT and has also joined the flat rate scheme.

They are opting for the cash basis, and accounting for VAT on income when it is received, rather than invoiced. I just have a query which I know will be a very easy answer for those who deal with the FRS on a regular basis, but I just can't seem to find an answer on it...

In the first VAT period, only a couple of invoices that were banked were invoices that had had VAT charged ton them. The rest of the bankings were for invoices that were raised prior to the VAT registration date.

In determining the turnover figure for the first VAT period, do I only include the bankings which are for invoices that have had VAT accounted on them? Or do I have to apply the FRS % to all of the bankings in that period, regardless of whether any VAT was charged to the client?

I'm hoping it isn't the latter as the client will clearly be out of pocket!

An answer would be very gratefully received, and any official guidance you can point me to which clarifies this will be very helpful.

Thanks!

[section 44]

All payments from the effective date of VAT registration

[miss_moneypenny]

Thanks for your answer - so just to clarify, you mean all bankings from date of registration, regardless of whether any Vat was charged on the invoices that are being banked?

Also, can you point me to any guidance that confirms that?

Thanks so much! )

[section 44]

Yes. Perhaps VAT invoices should have been issued (if not then why not)?

[miss_moneypenny]

Maybe I have explained very clearly, sorry!

My client was already trading as a sole trader below the VAT threshold limit for approx 18 months.

They decided they would like to voluntarily register for Vat and adopt the Flat rate scheme, and account for VAT on the cash basis.

They chose 1st September as their registration date and so have been charging VAT on all of their invoices since then.

For their first VAT return, which is for the month of September, their bankings for the month were mainly August invoices being paid (which had not had VAT charged on them as this was before their VAT reg date) with just a couple of September invoices (which do include VAT) being banked at the end of the month.

So I am just trying to find clarification of whether I need to apply the FRS % to their total bankings in September, or whether I only apply it to the few that were VATable invoices (ie. invoiced in September)

Based on an answer to a similar question I just found on here after posting my original question, where someone said "Cash Accounting only makes you account for VAT on taxable supplies, a supply isn't taxable if you weren't registered and so no VAT to acount for"... my feeling is that the August invoices aren't taxable and so can be omitted from the VAT return . But I am happy to be proved wrong if anyone can point me to some guidance that clarifies this. I have searched and searched but cannot find an answer!

Thanks so much for your replies )

[RMC]

If you deregister when on cash accounting, you must account for output tax on sales made before deregistration (under non-FRS method).
The converse does not seem to apply, to stop people like your company marathon invoicing before registration. Check out Value Added Tax (Amendment) (No. 2) Regulations 2002 and VAT notice 733.

Can cash accounting wait until pre-registration sales are paid?

[robbob]

The converse does not seem to apply, to stop people like your company marathon invoicing before registration. Check out Value Added Tax (Amendment) (No. 2) Regulations 2002 and VAT notice 733.

Hello RMC - do you have any specific bits that you can quote that suggest this is the case.

Notice 733 is a bit woolly it says that previous sales under normal cash accounting (pre flat rate but vatable sales) are treated as any normal flat rate sale banked - but i can't see any specific mention reference pre-vat sales.


Notice 700 says the following

Supplies are outside the scope of the tax if they are:
made by someone who is not a taxable person

https://www.gov.uk/government/publicati ... -vat-guide

On the basis that notice 700 says the supply is outside the scope of vat i would start from the viewpoint that the item does not go on the vat return unless the guidance specifically says otherwise.

OP if in doubt ring the vat office and ask for specific confirmation - if this says no vat is due and you get a call reference that should be sufficient additional proof.

A

[miss_moneypenny]

Thanks for your response Robbob. As ever, you have understood and answered my query perfectly

I agreed with your take on it, but I have just rang the VAT Helpline to confirm and was told, albeit it by a slightly snotty and patronising advisor that any invoices raised prior to the VAT registration date are irrelevant for VAT purposes and so would not need to be included in the VAT calculations on the FRS cash basis if they happened to be received after the date of registration.

Have made a note of the call reference for my file, so hopefully all sorted and the outcome I was hoping for.

Thanks again, everyone's help is much appreciated and I can now put the file away and nurse my headache

[King_Maker]

Unfortunately, HMRC advice cannot be relied on.

In a recent case, the Tax Tribunal commented that an accountant was being negligent when acting on erroneous advice from a Tax Inspector.

[robbob]

Unfortunately, HMRC advice cannot be relied on.

Agreed - hopefully the confirmation the sales are outside of the scope of vat as indicated in notice 700 is the main indicator that everything is ok- so hmrc are effectively just confirming what is confirmed in notice 700.

However I am interested in any thoughts that RMC has particularly if the legislation mentioned has anything useful to add that may contradict the viewpoint that pre-registration sales are not relevant - i did have a look through the relevant Regulations but could find nothing specific that would flag this up as being an issue but i could easily have missed something.