I have a client who has been running a Limited Company for the past year and has recently hit the VAT registration threshold, and subsequently registered for VAT from the 1st November 2014.
My client has previously sub let his office to his friend who is just starting in business for £50 per month. As my client is now VAT registered I understand that any sublet agreement is VAT exempt unless an option to tax is made. However, my client is on the Flat Rate Scheme, so therefore would be out of pocket, if my client was to opt to tax, then the sublet client would be out of pocket (as he is getting started in business this would really throw the sublet client).
I know this may seem like an unanswerable question, but is there any other way of recording this transaction, in which both parties share an office equally.
Replies (6)
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Can't he just take the hit
If he treats the £50 as VAT inclusive it will cost him £8.33 per month. Otherwise, he could lose his tenant and lose the remaining £41.67.
Not shared
It is not shared, it is sublet. Shared would be a pooling of costs, not one party billing the other. The only way to avoid this would be to give up the rental income entirely.
Only just registered for VAT, so only just registered for Flat Rate Scheme. Surely having to account for Flat Rate VAT on this income is part of the calculation to determine if using the scheme is worthwhile. Was this not considered when applying to join the scheme in the first place?
Out of pocket
Yes, but the sum is potentially trivial depending on the client's FRS activity. How much is it, and is it a big deal for your client that has a turnover of £80 something K and rising?
£87!
At highest FRS rate without first year discount, we are talking a whopping £87 at stake here. You don't just throw away that sort of money carelessly. :-) Yes, but the sum is potentially trivial depending on the client's FRS activity.
Indeed!
At highest FRS rate without first year discount, we are talking a whopping £87 at stake here. You don't just throw away that sort of money carelessly. :-) Yes, but the sum is potentially trivial depending on the client's FRS activity.
Let's not forget the £100 fee the OP will be charging the client for bespoke advice.