You might also be interested in
Replies (18)
Please login or register to join the discussion.
The Numpty Department came up with this one, and predictably so far its impact on my 50 or so affected clients has probably been nothing like what HMRC expects.
10 or so have discussed it with me. 3 are de-registering, the benefit to them of FRS was small beer. 4 are taking the hit on 16.5% or going to standard VAT.
Of the rest, some new sectors are being attacked: trading in computer parts, stationery, walking poles and farming implements. I expect to see a diverse range of trades going through the accounts in the coming year.
Idiots at HMRC! You really despair of them.
I'd be wary about setting up new 'trades'. HMRC have hinted that they are aware of some of the 'solutions' doing the rounds and have said that the legislation will need to be tweaked to take care of them. Don't be surprised if different FRS rates have to be applied to different income streams, with cost of goods also being streamed.
But you're right - the whole thing is idiotic. FRS was set up to simplify matters for small traders. In theory, EVERY FRS user will now need to keep a detailed track of their expense categories and perform the quarterly (or annual) calculations to check whether or not they are a low-cost trader for the period. In one fell swoop, HMRC have effectively removed the very simplification that FRS was supposed to bring, so they may as well scrap the Scheme.
Expanding on the Admin problems above, as discussed on the thread below, this is going to be a nightmare for some accounting systems, especially those that record the FRS VAT liability as each invoice is raised, with the worst scenario occurring under the cash basis, where an invoice is paid in a quarter with a different FRS rate to the one in which the invoice was raised.
https://www.accountingweb.co.uk/tax/business-tax/vat-flat-rate-scheme-ch...
You can`t deny that some agencies and financial service businesses have abused FRS for years and it was mainly these agencies who got the most financial benefit of FRS and not the actual small businesses they represented.
HMRC needed to do something about this - “limited cost trader” category should actually hit the abusers, but it will also inevitably bite some other small businesses too. Collateral damage.
The excess of VAT will be taxed as profit at 20% corporation tax.
All that's happening is that Corporation tax is being renamed VAT.
Total waste of time, make things simpler for the trader and the tax man.
As I have been posting for several months, virtually every one of our FRS clients will be coming out as it hits every small service business and we don't do "stuff" businesses.
It hits every single service business on our books, including us unless there is a proper redraft.
I have already booked the last week in March just to deal with all the paperwork of pulling all our clients out, on the assumption HMRC don't budge on the issue.
In our business, we use the FRS scheme and I have worked out that we spend around £7K/annum on VAT-able supplies which cover a myriad of things but are mainly services (eg accountant, IT support, phone and web related) and what puzzled me is that the gov.uk website says there would be an 8 week consultation period for businesses to provide feedback but there was no detail on process/contact info. Can anyone also advise why only "goods" are allowed in the limited cost trader calculation and what is actually meant by "goods" within the new rules for FRS? I called VAT helpline in Dec and put these questions to them, they knew nothing about FRS changes and said to send written (no phone number offered) feedback to:-
HM Revenue and Customs - National Registration Unit
Imperial House
77 Victoria Street
Grimsby
DN31 1DB
United Kingdom
I can understand why HMRC would want to exclude ultra-low cost businesses from the FRS however I don't understand why VAT-able services aren't seen as true costs to a business. Furthermore, this is going to add more complexity and work to the tasks we all face when running our SMEs. We will either jump in and out of the FRS quarter by quarter or have to do a more involved VAT standard return. What was it David Cameron said about reducing red tape....? Why can't government target the abusers as mentioned above rather than cause the 90+ percent of compliant businesses who use the scheme as intended? The answer is, few people in government have ever run a business.
This is going to affect me as well as some of my clients - can anyone tell me when we will know for sure that it's definitely happening from 1st April - I need to deregister some and move to standard vat for others, but have been holding off
The article says "if the changes go ahead" - is it still a possibility it will not go ahead?
Most of my clients pay for services, rather than goods, and thus will be caught by this new rule. They weren't 'abusing' the scheme, they were using it as it was laid out in law.
How can MTD work with the less detailed records for FRS? This is a nail in the coffin for FRS. Whilst there can be benefits for FRS users on a proper basis at the end of the day 20% is collected on sales and detailed records maintained to claim 20% input tax. The difference is paid over to HMRC. No fiddling about amending turnover. Am I missing something?
For clients that can, and that purchase goods but with major peaks and troughs through the year, we have suggested the annual accounting scheme, so that as long as their goods % is OK across the whole year they will be OK. Surely there is a better way to identify these 2 man companies that are profiting from the FRS? Could they not disallow them from using the FRS if they get any more than 60% of their income from one company? We all know these companies are usually invoicing 1 or 2 clients all year...??? Yes this could still be worked around, but not as easily...
We have 14 FRS clients and my best guess is that only 2 will stay in the scheme after 1st April. I have yet to agree with each of the affected 12 how we will process the VAT on their costs. As most are consultants it will inevitably relate to travel expenses. If we have to process a myriad of small subsistence bills each month, then it will cost more money. I think I am going to recommend that they use the Flat Rate Expenses allowance and we just have to determine the level. That way I can keep my fees at the same level. Just needs an exercise for each client to determine the level of the Flat Rate claim, if they habitually spend less than £10 per day.
The FRS scheme was one of the reasons put forward for difficulties with MTD. After these changes HMRC will defend this argument by saying there are only X businesses still in the scheme. Am I being cynical but all roads appear to point towards digital.
If I remember correctly when self assessment was introduced the claim from HMRC was that most small businesses would be able to manage without an accountant. We are also told that IT changes would make accountants superfluous. Perhaps, and I may be incorrect here, HMRC are actually making the system more complex in order to safeguard the existence of the accountancy profession!!