Flat Rate Scheme Sole Trader - include Rent?

Flat Rate Scheme Sole Trader - include Rent?

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Client received income from  2 bedrooms in his only and main residence from April 2010. These people share all facilities of the house - three friends and the client.  We have included this rental income on the VAT Quarterly Returns but it has now blipped him over the Maximum Turnover to stay in the scheme - just wanted to be certain that the rental income should be included (and VAT paid over on it)

(Its a hot food mobile take-away business so we also need to submit a protective claim for repayment in view of recent German case)

Thanks

Replies (7)

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Teignmouth
By Paul Scholes
04th Apr 2011 09:57

Exclude rent

Hi - from what you say I don't think the rent is "business" rent, ie the property is not business premises, part of which is being rented out and so I don't think it falls into FRS turnover.

Presumably you make a claim in the accounts for use of home, but that's only the bit used for the business, the other bit of the property is personal use and part of that is rented out.

 

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Red Leader
By Red Leader
04th Apr 2011 11:03

Include rent

This is one of those "this can't be true, can it?" aspects of the crazy world of VAT.

Rent is included in FRS turnover and the flat rate is payable on it:

http://www.hmrc.gov.uk/vat/managing/returns-accounts/fat-rate-returns.htm

FRs is supposed to be a simplification and a lot of the time it is, but here is a ridiculous trap that any sole trader who is also a residential landlord can fall into.  VAT isn't chargeable on residential rent unless you "simplify" your VAT affairs and use the FRS!

 

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By thomas.peterson
04th Apr 2011 11:48

2 points if I may

I agree with Paul, although rent would be included normally, this only applies where the rents are business related.  You include ALL income on the FRS, including things you normally would never think to include, but they must still be part of the business income.

This is backed up by

"You must exclude from your flat rate turnover:

private income"

In this case the rents are the individuals private income, though whether HMRC would argue that the rental business should be merged with the FF income for VAT is another matter...

 

My second (lighter) point is that the HMRC link says it relates to 'Fat' rate returns :)  I assumed you had mistyped, but it truly is 'fat'!

 

#Edit# You know about 'Rent a Room' relief right?  Just while I think on.

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By thomas.peterson
04th Apr 2011 12:40

In that case

I cautiously retract my first point, though I will also point to my caveat about HMRC wanting to merge activities :)

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Teignmouth
By Paul Scholes
04th Apr 2011 12:41

I stand corrected

Red Leader is correct - EU Directive 2006/112 article 9(1) joins together any "economic activity" of the same taxable person and includes "The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity"

Worth asking therefore who owns the property, if it's jointly owned you may be able to avoid half (or all)?

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By thomas.peterson
04th Apr 2011 15:20

Yes, I feel...

... I should also make my appologies to Red Leader, apparently I have been doing it wrong (luckily only for a few months and even then only for a property business where I obviously had included the rents, so no harm done! :) )

But worth noting for the future.

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