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VAT Flate Rate Scheme

Have a contractor client who was on the flat rate scheme for VAT.

One of those clients who does things without asking and we rarely hear from him other then for the year end accounts prep.

On preparing the accounts, it appeared that for a large part of the year he was working for (and billing) a US company, zero rating the invoices.  He had been sending in nil VAT returns.

The VAT owed is around 10k.

Informed client that he had been declaring the wrong amounts on his VAT return and that he was still liable to the FRS % on his zero rated invoices, despite the fact that he was not actually charging VAT.

Client informed that he had requested with HMRC to come off the FRS as soon as he started working for the US co.

When asked for HMRC confirmation he said that he can't find it but 'thinks' he received it.

I am not convinced that the client did inform HMRC and my question is if he didn't can this be done retrospectively or will he be liable for the full amount of VAT owed under the FRS? 

Advice appreciated.

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23rd Jan 2011 10:50

Maybe not a problem?

Too busy to check it in detail, but wouldn't turnover in the US be 'outwith the scope' of VAT and therefore not turnover to be included in Flat Rate VAT?

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23rd Jan 2011 11:27

Zero rated is not exempt, but the website suggests he is OK - or

http://www.hmrc.gov.uk/vat/managing/returns-accounts/fat-rate-returns.htm [PS love the typo in the page URL !]

"You must exclude from your flat rate turnover:

private incomesale proceeds from goods you own but which haven't been used in your businessany sales of gold covered by the VAT Actnon-business income and supplies outside the scope of VAT"

http://www.hmrc.gov.uk/vat/forms-rates/rates/rates.htm

"Goods and services that are outside the scope of UK VAT includes anything you:

sell (or otherwise supply) when you're not registered for VAT - and you don't need to be registered buy or sell outside the European Union (EU) sell (or otherwise supply) but not as part of your business - for example, if you occasionally receive income from sources such as leisure activities or hobbies buy and sell for your own personal use, such as a hobby"

But this seems a little odd:

http://www.hmrc.gov.uk/vat/managing/international/exports/goods.htm#6

"VAT is a tax charged on goods used in the EU, so if goods are exported outside the EU, VAT isn't charged. You can zero-rate the sale, provided you get and keep evidence of the export, and comply with all other laws"

I would have thought the correct wording should be "You can exempt the sale ..." - thoughts ?

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23rd Jan 2011 11:29

Inclined to agree with Marion

Jason, that is how I have read things and I think there has been quite a bit of debate on the subject on AWeb.

It's some time since I've looked at this so my memory might be playing tricks, but if it is there will be clients I will need to contact urgently (in February!).

-- Kind regards Andy

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By zebaa
23rd Jan 2011 11:31

See here

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.por...

 

I think, from only a quick look, MM may be correct. See 6.3, line 'dot' 4.

What do I exclude from from my flat rate vat turnover...any supplies outside the scope od UK vat.

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By zebaa
23rd Jan 2011 11:33

Ahh.. too late

In the time it took me, I see others have answered better. Well done.

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23rd Jan 2011 15:08

.

Thanks all.

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24th Jan 2011 09:42

Place of Supply

@MikeWhit

Is this not to do with place of supply?

It is Outside the Scope where the place of supply is outside the EU (i.e. where the customer is as is now the case with most B2B services). Exports of goods have a place of supply in the UK but are Zero rated.

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