I believe the FRS saving income shouldn't be included in the annual accounts ? QB software calculates the saving made by being on FRS every time a VAT return gets filed.
The software then post a journal indicating those saving. The saving made is posted as an income on the Profit & loss statement.
Unfortunately there is no way to disable this function ( the saving made by FRS), my second question if I may, would it be a simple journal to take this income out and offset it again an expense account?
Many thanks for any answer in advance.
Replies (18)
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Opposing views
I have always included it as income to the business but there is an opposing view that it should be disregarded in that respect.
You have to account for the saving somewhere
You have to account for the FRS saving somewhere in the accounts. Usually it's adjusted on the sales account. You could alternatively credit it against an expense item - but which one? I suppose you could have a credit expense account for 'FRS saving' say.
The net profit will be the same whatever you do, so just apply logic. And yes, there is a simple journal if you want to take it out of income and put in an expense account - ask your accountant if you don't understand the double entry.
Depends what the savings calculation actually is. Is it just the 'sales' VAT saving, or does it somehow factor in the input VAT on expenses lost as well?
In any event, the correct method is to show turnover gross of VAT less flat rate scheme VAT payable. Expenses will also be shown gross of VAT.
@OP
Not include in the accounts? You seem to be saying that income arising from the FRS is not relevant for a true and fair view, and presumably if not included in the accounts, not taxable?
I must have misunderstood.
Anyway i am not sure why you would wish to reverse the journal that QB has helpfully provided.
Nonesense
The QB journal is indicative of the FRS saving which is very good for general purpose, but I believe this is not a taxable income and would make no sense to a business to be on the FRS if the saving made on FRS be taxable? the main objective of taking out this income from the annual account is to reduce the taxable income?
I'm sorry but this is nonsense. The point of the FRS is you collect output VAT from customers but don't pay all of it to HMRC, hence make a 'profit'. Assuming this is more than the VAT lost on expenses not claimed, which it should be, then there is a profit overall that is taxable. The FRS is administratively easier too for small businesses. Again we may be at cross purposes as I do not actually know what the QB journal is but the FRS 'profit' is intrinsically included in the P&L numbers.
Absolute Nonsense
The QB journal is indicative of the FRS saving which is very good for general purpose, but I believe this is not a taxable income and would make no sense to a business to be on the FRS if the saving made on FRS be taxable? the main objective of taking out this income from the annual account is to reduce the taxable income?
If I can say so without giving offence, this is absolute rubbish.
Somebody gives you £100 and you pay - probably 20% - tax on it, there's a fair chance you'll be better off.
It's taxable. And why not ?
Taxable
It's taxable.
Whether you include it in the accounts, I suppose, is up to you.
But it needs to go on the tax return.
Jafar - you have some odd ideas.
You have totally misinterpreted the idea behind the FRS
Savings made from the FRS scheme are taxable and we usually show these as “Other income”.
The journal, I presume, is entered based on income and expenses being recorded using the standard system and then the saving is added in as a debit to the VAT owed and a credit to other income. That's how I record it in every set of accounts I prepare under the FRS.
Jafar, either you're misunderstanding this or you have some very incorrect ideas about the FRS scheme because any additional income made as a result of being on the FRS is definitely taxable.