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I have had best part of a dozen calls / emails on this from clients who we wrote to last week advising them to opt out of the flat rate thinking we got it wrong and they now don't need to.
HMRC at their infuriating best.
If you are an IT professional/tax adviser/accountant etc, presumably you can still get to the 2% goods spend required by spending on technical books/legislation etc.
You could as long as the books etc are relevant to the work you are currently doing.
Another winner from the Numpties.
Out of interest, if the promotional items clause is not in the VAT Notice 733 does that mean it's legally unenforceable?
No. The exclusion for promotional items IS in the regulations (the law) but is not in the guidance Notice 733 (not the law). The courts enforce the law not HMRC guidance.
Damn!
Another anomaly: I understand printed letterheads qualify, but business cards do not as they are bought to "give away". Presumably if I get "With compliments" slips printed to save wasting a whole sheet of letterhead every time I send something, these would fall foul of the "giving away" rule?
What a farce.
Business cards:
These will qualify if you use them to advise your clients of your details.
It is "goods for disposal as promotional items, gifts or donations" which do not qualify.
The business card is clearly not a gift, it is not a promotional item, nor is it a donation.
If they were intended to be given to potential new clients, then this is a different matter.
I seem to recall a specific question on the webinar about business cards and the HMRC guy said they would be classed as items to be given away so are not relevant goods.
Maybe I'm wrong or maybe (heaven forbid) the HMRC guy got it wrong but that's how I remember it.
According to the HMRC guidance technical guidance would qualify as goods if you subscribe for it in paper form, or the guidance is sent to you in the form of a CD. An online subscription, for exactly the same information, does not qualify as "goods".
Being zero rated does not seem to prevent books from being Relevant Goods. But would books be capital expenditure goods (for the purpose of the FRS) and therefore excluded from being Relevant Goods?
VAT notice 733, para 15.1 says Capital expenditure goods in the Flat Rate Scheme are capital goods, which it says are "those goods which are bought to be used in the business but are not used up by it, except through normal wear and tear over a number of years". Most reference books are not used up by the business.
Certain capital goods are excluded from being capital expenditure goods, but I don't think these exclusions would apply to books.
Perhaps hard copy periodicals?
Books would not be capital if they had a useful life of less than two years and I have always taken the view that few, if any, tax reference books can have a useful life that exceeds two years since there are bound to have been changes to either legislation or guidance which will not be reflected in the book if it is so old.
I'm thinking of hairdressers, where the cost of products used is going to be more than 2%. There must be plenty of this kind of service business which
are not affected.
fawltybasil2575:
For sale: Biros (pack of 10) £250
Wanted: Pencils (pack of 10), happy to pay up to £250.
I see there is a new VAT notice 733 as of today. This says that Relevant Goods excludes:
"goods which are bought solely to meet the test, as these would not be used exclusively for the purposes of your business. For example, if the quantity of goods being bought can’t reasonably be used by the business and are simply ‘stockpiled’ or thrown away, even if the business may normally use those items is smaller quantities such as office materials"
I see there is a new VAT notice 733 as of today. This says that Relevant Goods excludes:
"goods which are bought solely to meet the test, as these would not be used exclusively for the purposes of your business. For example, if the quantity of goods being bought can’t reasonably be used by the business and are simply ‘stockpiled’ or thrown away, even if the business may normally use those items is smaller quantities such as office materials"
I believe I'm correct in saying that notice 733 doesn't have the force of law. The numpties shouldn't add these kind of comments made up on the hoof when there is no legislation to back it up.
I wouldn't say there is nothing to back it up. The legislation says "“relevant goods” are goods used or to be used by a flat-rate trader exclusively for the purposes of the trader’s business". The notice is their interpretation of "exclusively". Personally, I think it is a tenable interpretation.I believe I'm correct in saying that notice 733 doesn't have the force of law. The numpties shouldn't add these kind of comments made up on the hoof when there is no legislation to back it up.
Surely no one will want to stop actually using it? All the government have done is to remove a loophole that was effectively leaving excess cash in the pocket for some businesses, specifically service businesses who were getting something for nothing?
Hence they have lifted the rate to an effective max of 16.5% (rather than 16.67%)
The scheme is surely still simpler all the way to this level. Or have I misunderstood?
Well it all depends whether the client or their accountant wants to do the maths. The increase to 16.5% means that you will only very slightly 'gain' on the FRS scheme compared to previously, but the alternative is that if they revert back to the normal VAT scheme then they can claim back VAT on their expenses, so they may well gain even more on that scheme.
For an IT contractor, for example, I may choose to charge them £50 per quarter to submit a normal VAT scheme return (it will probably only take me 30 mins tops), but they will now be able to claim VAT on my annual accountancy fees (which would be say £1,200 gross), which would offset my extra VAT processing fee each quarter. Then it all depends what other input VAT expenses the client has. They may only marginally benefit from the normal VAT scheme, but if it exceeds the FRS benefit figure then most of my clients would choose to do that, they like to know that they have achieved a 'win' still against HMRC, particularly if they know that I'm still in charge of everything for them and there's nothing extra for them to do.
Of course it all depends on their VATable expenses, and the clients level of turnover. You just have to do the maths and let the client decide. Personally I'd prefer them to stay on the FRS, even though I may generate more fees on the normal VAT scheme, I just value my time higher than that at present.
These letters came so late that we had all advised our clients of the effectiveness or otherwise of them staying on the FRS, determined by their spending patterns over the last quarter or two, far before HMRC thought it would be a good idea to write to taxpayers.
I don't quite understand how cancelling their VAT registration has an effect on their MTD date though. I thought all companies were 2020 - as per 'those who pay corporation tax' which I have seen in various updates.
Deregistering from the Flat Rate Scheme can be done by email to [email protected]
Barry Kernon
H W Fisher & Company
The original purpose of the FRS was to simplify record keeping (para 2.2 of VAT Notice 733), as a business needed to track only its sales (not costs) mid-year in order to meet its quarterly (VAT) filing obligations. The tax saving was a beneficial by-product, accepted by HMRC as a cost of getting more businesses to charge VAT (generating a greater tax-take from B2C traders).
Under MTD, all businesses (except those with turnover below £10k pa) will need to make a quarterly filing, so the benefit of simplified bookkeeping will have been eradicated. So the question surely arises: why are HMRC retaining the FRS at all once MTD starts? This should have been an issue for the OTS to have dealt with. Now, instead of a FRS that makes VAT simpler, we have a scheme that is hugely complex, requiring a regular check on costs to ensure that they do not fall foul of the 2% rule! This is yet another example of our tax system becoming more complex for no good reason. If HMRC don't want to lose tax from FRS, then they should abolish it instead of adding levels of complexity.
Maybe they *did* want to lose tax....? I know literally nobody on the FRS who is on the FRS for simplified book-keeping. Everyone did a back of the fag packet gain / loss calculation beforehand.
To add to my conspiracy theorising - a lot of politicians are self employed writers / speakers....!
[quote=charliecarne]
The original purpose of the FRS was to simplify record keeping (para 2.2 of VAT Notice 733)
Exactly. Well put Charlie Carne.
Expect to wait about 5 weeks for a reply from HMRC if you decide to opt out of the FRS -nearer 6 weeks for the letter to actually be received.
Letter from VAt office confirming cancellation arrive today. 6 weeks is about right. Notifying is the key and if you use the email link you will have proof.
As so many of our items are services and not goods (software licences etc) we calculate that it will be a no win for HMRC as we have now withdrawn from the flat rate. I wonder how many others are in a simalar position.
The email link for deregistering is good news. I tried to use my VAT account for this. it took HMRC 20 (calendar) days to reply and said I needed to write to an address in Grimsby. so much for digital communication!
What does this mean re Ltd Co?
I read somewhere that VAT returns will at some future date only be permitted via commercial software, and not thru present system. Has this statement got something to do with it???
"Where the trader’s turnover for the next 12 months is expected to be no more than £83,000, he may well wish to cancel his VAT registration with effect from 31 March to completely avoid VAT administration. This will give a limited company the added advantage of delaying MTD quarterly reporting until the start of its accounting period which starts on or after 1 April 2020"
What does this mean re Ltd Co?
I read somewhere that VAT returns will at some future date only be permitted via commercial software, and not thru present system. Has this statement got something to do with it???"Where the trader’s turnover for the next 12 months is expected to be no more than £83,000, he may well wish to cancel his VAT registration with effect from 31 March to completely avoid VAT administration. This will give a limited company the added advantage of delaying MTD quarterly reporting until the start of its accounting period which starts on or after 1 April 2020"
As I understand it, MTD for CT is still delayed until 2020. But MTD for VAT happens in 2019, including for limited companies.
Like I said fawltybasil2575 I am willing to sell you a pack of biros for the sum of £250. All I request in return is that you sell me a pack of pencils for which I am willing to offer around, say £250. Let me know if interested. That can hardly be construed as stockpiling can it?
It could be construed as not exclusively for the purposes of the business. And also as tax avoidance.Like I said fawltybasil2575 I am willing to sell you a pack of biros for the sum of £250. All I request in return is that you sell me a pack of pencils for which I am willing to offer around, say £250. Let me know if interested. That can hardly be construed as stockpiling can it?
@garethgreen
OK my comment was a bit tongue in cheek but I think you get the gist. Using the same two entities for both transactions would be pretty stupid but that's easy to solve.
Also it doesn't need to be £250, it could be more realistic. As far as I'm aware HMRC does not have the right to decide what I think is the best commercial deal for my business.
Why is this "not exclusively for the purposes of the business" by the way if I only use the pencils in my business?
Also it appears that businesses may not buy in bulk any more to achieve higher discounts, as this would be "stockpiling". Ridiculous.
Why is it tax avoidance? Maybe morally it doesn't smell good but what's the statute being broken? I see examples all the time on here of accountants' immediate responses to something slightly maverick as being illegal or not possible, without quoting any legislation or case law to back it up, just because to them it "doesn't feel right". Anyone with a bit of nouse could come to this decision without the years of training and practical experience of an accountant.
If you pay more than the market price for goods and would not have done so were it not for the desire to avoid being a LCT, then I think HMRC would argue that the payment was not exclusively for the purpose of the business, because one of the purposes was avoiding being a LCT.@garethgreen
...Why is this "not exclusively for the purposes of the business" by the way if I only use the pencils in my business?...
...Why is it tax avoidance? Maybe morally it doesn't smell good but what's the statute being broken? ...
To me, this would be tax avoidance because it is an attempt to bend the rules to gain a tax advantage that was clearly not intended and because it is contrived and artificial. (https://www.gov.uk/guidance/tax-avoidance-an-introduction) Whether it could, legally, be challenged purely on the grounds of being tax avoidance I couldn't say, but I think it would certainly embolden HMRC in taking a very tough line on the "exclusively" test.
In my view, buying in bulk is fine, as long as the quantities are not beyond the amount that any rational business would want to purchase in advance.
sawebs wrote:
@garethgreen
...Why is this "not exclusively for the purposes of the business" by the way if I only use the pencils in my business?...
...Why is it tax avoidance? Maybe morally it doesn't smell good but what's the statute being broken? ...
If you pay more than the market price for goods and would not have done so were it not for the desire to avoid being a LCT, then I think HMRC would argue that the payment was not exclusively for the purpose of the business, because one of the purposes was avoiding being a LCT.
To me, this would be tax avoidance because it is an attempt to bend the rules to gain a tax advantage that was clearly not intended and because it is contrived and artificial. (https://www.gov.uk/guidance/tax-avoidance-an-introduction) Whether it could, legally, be challenged purely on the grounds of being tax avoidance I couldn't say, but I think it would certainly embolden HMRC in taking a very tough line on the "exclusively" test.
In my view, buying in bulk is fine, as long as the quantities are not beyond the amount that any rational business would want to purchase in advance.
So it sounds like HMRC need to know your state of mind at the time of purchase i.e. Did you buy the goods knowing that you had not bought enough relevant goods already and that this purchase would take you over the 2% required and there was no other motivation for this purchase.
There are many reasons why you might pay over the market price for things. Quality or speed of service is a common one. Brand loyalty and knowing that quality will be assured. The last minute purchase of a train or plane ticket that would have been a lot cheaper in advance. Or sometimes just ignorance of the market where you don't have time to do the research.
Yes, if there's a good reason why a rational business would have paid the higher price or bought the volume that was bought, I would expect that would be fine. If you can think of a good reason to pay £250 for a pack of pencils then good luck!
Bulk buying is, at best, a short term solution. Even if you can justify that buying, say, two years worth of a certain type of goods is exclusively for the purpose of the business, you surely can't justify buying more of those goods until you have used the first lot.
If you buy so much that you end up throwing some away, I think the onus would be on you to rebut the presumption that you did not buy exclusively for the purpose of the business.
Just has another thought. Promotional material is not allowed within relevant goods. But if I spend £200 a month on toner and paper to print my own promotional material (after buying a separate printer, only for business use of course) would that be allowed?
What a complete farce. Why didn't they just say if you're a PSC you can't use the flat rate scheme? That is what the numpties intended after all. Oh and umbrella companies too.
I hope the numpties get completely tied up in knots (hopefully legal ones) trying to enforce this totally ridiculous attack on small business. I'm sure the increased admin costs and legal costs will dwarf any savings they hope to make.
There I agree with you. It is clear that the real policy is that any service that primarily involves brainpower, rather than physical activity (eg, using spanners, hair brushes or mops), cannot use the FRS. HMRC/HMT will clearly do whatever is necessary to ensure that any such companies that stay in the FRS will be LCTs.What a complete farce. Why didn't they just say if you're a PSC you can't use the flat rate scheme? That is what the numpties intended after all. Oh and umbrella companies too.
I hope the numpties get completely tied up in knots (hopefully legal ones) trying to enforce this totally ridiculous attack on small business. I'm sure the increased admin costs and legal costs will dwarf any savings they hope to make.
Oh my Gosh. its gets worse, the FRS was a great little scheme, oh I forgot George Osborne promised to balance the books, even if it lead to lots of problems on the way, and throwing out the baby with the bathwater.
I presume that all VAT exempt expenses such as interest payable and insurance are excluded from the test. These are neither goods nor services, however if we include these then I have several companies that would pass the test.
AFAIK, being VAT exempt does not prevent goods from being Relevant Goods. However, interest and insurance are not goods.
The new version of VAT Notice 733 now agrees with the regulations:
https://www.gov.uk/government/publications/vat-notice-733-flat-rate-sche...
Thank you !
do you think luxury fountain pain could be treated as office supplies / stationary ? Same question for luxury briefcase or laptop bag used exclusively for office?
thanks in advance
Good evening everyone,
Very interesting article.
What about if I buy some really nice stationary like a luxury fountain pen for 300 GBP ? Would that be treated as office supplies / stationary ?
Thanks in advance for your guidance
Also would office products such briefcase or laptop bag would be ok?
Looking at Aspinal brand the bill can be over 250 very often...
https://www.aspinaloflondon.com/homeware-and-gifts/office-and-business?g...
How are people on the flat rate scheme affected by MTD? I haven't seen any guidance on this.
Do they have to keep digital data even though they are just using a percentage of turnover?
I'd be grateful for any thoughts.