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VAT "saved" on flat rate VAT

Will someone tell me is this subject to Corp Tax please. I cant seem to find the answer anywhere.

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22nd Jan 2013 12:09

Is taxable

It is subject to corp./income tax.

The HMRC recommended method is that turnover = gross and the flat rate payments are an expense. (http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_PublicNoticesAndInfoSheets&propertyType=document&columns=1&id=HMCE_CL_000345#P381_35379) thus it follows that the 'profit' is taxable.

Bear in mind that you're not just saving output VAT, but losing input VAT, so it would not be particularly efficient to calculate the true 'VAT saved' figure anyway.

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22nd Jan 2013 12:34

Turnover is not shown gross!

The method recommended by HMRC, as stated in the link provided above, is that:

- Turnover is shown as gross sales less flat rate percentage

- Irrecoverable input VAT is included in expenses.

The flat rate "profit" is indeed taxable.

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22nd Jan 2013 12:34

Ah yes, I was mixing up with our own preferred method (treating f.r. payments as cost of sales for transparency).

I recall there have been lengthy threads on this one in the past!

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By neileg
22nd Jan 2013 12:26

Neither is 'correct'

HMRC have said what they expect in the accounts but the treament is not mandatory. You can show the VAT saving if you want, show turnover gross and VAT paid as an expense or net down the turnover by the FR%. You could probably think of another way if you wanted to.

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22nd Jan 2013 12:31

Post edited

Of course  I have edited my post accordingly.

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I always show flat rate 'profit' in the accounts ...

as it reminds the client every year what good advice I gave them!!

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23rd Jan 2013 12:51

What a good idea Steve!

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