Flat Rate Vat 14.5% and 5% reduced rate VAT

Flat Rate Vat 14.5% and 5% reduced rate VAT

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Hi,

I have a client who works in the construction industry. He is VAT registered on the flat rate scheme at 14.5%, usually carrying out work charging standard rate VAT to the companies he does the work for.

Now he is starting to do work where he is charging the company at the reduced rate at 5% (the criteria is met). Work will probably still be more standard rate work then reduced rate work at say 60% to 40% for the year.

I believe that it will be best for him to leave the flat rate scheme as he is going to be worse off paying the 14.5% on the reduced rate gross income, but not sure if I'm missing something here.

Any advice on this will be appreciated.

Thanks in advance

Replies (3)

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chips_at_mattersey
By Les Howard
02nd Sep 2014 17:22

Flat Rate Scheme

There is a rule that prevents a taxpayer leaving and re-entering the FRS within a year. However, as long as he has been out of the scheme for at least 12 months, he can rejoin; Reg 55L(1)(c) (iv) is the statutory reference; Notice 733, para 3.6 also refers.

Apart from that, the usual FRS rules relating to admission to the scheme apply.

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Euan's picture
By Euan MacLennan
02nd Sep 2014 17:52

Of course, he will be worse off

On a 60:40 split of 20:5%, he would pay over VAT under FRS at 16.53% of his net sales, but only at 14% under the normal method and then be able to claim some input tax.  It's a no-brainer.

As Les says, he would have to stay out of FRS for at least a year, but it seems unlikely that he would ever want to go back in.

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By ftodd
03rd Sep 2014 09:40

Thanks for the responses

Thank you.

I'm clear on how to deal with this now.

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