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Good response Basil. I contributed to a posting about the death of the accountant yesterday and it is in considering this sort of situation where the accountant will always be needed. Your response accords with the general advice I have give my clients and it is good to have someone of your stature enlarging on my understanding.
Any idea where we can get more info on what counts as goods? At first I thought it had to be stuff that counts as cost of sales, so likely to be nil for a non-manufacturing business. But now it seems that stationery would count. My specific question is about property rental businesses. Would things like repairs and agents fees count as goods? They don't seem to be excluded, so maybe OK?
The flat rate for accountants is already so high I'm OK to leave the scheme. On turnover of £50K you "make" £1,300 from the FRS. I reckon I could easily claim back £1,300 of VAT in a year using the standard scheme.
How much VAT does Iris charge you? That in itself would take a decent bite out of £1,300...
The people who are going to suffer are contractors with travel etc as their main expense.
This new legislation will make it worthwhile for "abusers" of the scheme to find a way round it by buying and/or buying/selling goods. The marginal users, for whom the scheme was designed with only save marginally by using the work around and will not want stationery pilling up.
The marginal users will lose out and will be faced with increased admin.
Well done HMRC! Take a bow!
Any idea where we can get more info on what counts as goods? At first I thought it had to be stuff that counts as cost of sales, so likely to be nil for a non-manufacturing business. But now it seems that stationery would count. My specific question is about property rental businesses. Would things like repairs and agents fees count as goods? They don't seem to be excluded, so maybe OK?
Many thanks for this helpful article. As I stated in an earlier post, the Numpty Department of HMRC came up with these stupid changes to FRS when easier options were available which would BOTH reduce the UK tax code AND increase tax take by more than the Numpty Department changes will.
As I understand it, the changes are being brought about because of perceived abuse by a handful of 'rogue' traders, and who HMRC already know about - namely certain recruitment agencies and the like. Rather than introducing a sweeping change which will, as is usually the case, adversely affect the innocent (why are bona fide services not included as well as goods?) why did HMRC not simply use the powers already available to them - Reg 55P?
It's an error in my view to approach these issues with the mindset of an efficient commercial business person who can find ways of solving problems which involve simplifying and streamlining processes.
The mindset you need is one of an incredibly bureaucratic and jobsworthy pedant. With this mindset you will soon realise that the solution to any problem is always going to be more complexity, more rules, less streamlining.
Once you have this mindset, the solution to the problem of the FRS is obvious. It is too simple a VAT system. What it needs is a lot more rules, a lot more complexity.
Another glorious victory for the Numpty Department of HMRC, trebles all round at the bar please!
mr.mischief,
You are so right. How can people write about the death of the accountant, when we always know that the Numpty Department (lovely name) will continue to add complexity. Daft changes to the legal system, instead of starting with a blank sheet of paper, will always mean that the added complexity scares off clients from even attempting this work themselves.
2 thoughts
1. What if I buy a £300 ski jacket, get the company logo embroidered on it and give it to one of the clients each quarter as a gift. Is that a good? Or 10 x £30 sweatshirts., IS THAT A GOOD ?
Because a 3% gain on £200k is £6k
If I buy calculators from china and sell them on ebay, I will have 2 categories and I know under frs you have to go with the % on the biggest category. But will the goods on one category be offsetable against the % on the main category, because my thjought is HMRC will say Non! and that goes to the core of this article.
Anyone agree/disagree with my thoughts?
and as almost all software is now cloud based?
can xero/freeagent/sage etc even send you a disk these days?
As always, HMRC have taken a sledgehammer to crack a nut, but even that will fail to stop the "abuse" they've suddenly (after 14 years) got themselves so worked up about.
I've a feeling that further rules will be introduced by April to disallow the stockpiling or casual sale of goods the trader does not immediately use or need.
If not, I wonder if it would be OK if traders form a sort of unofficial "club" and simply pass the same goods to each other round and round in circles. Surely they won't let us get away with that one.
Advertising in hard copy media presumably qualifies given that you can physically touch the ad.
Also, I wonder if buying a laptop once a year would work if you dispose of it within 12 months. Terrible waste of money of course, but I suppose it might stimulate the economy.
This post sums up for me how stupid this measure is.As always, HMRC have taken a sledgehammer to crack a nut, but even that will fail to stop the "abuse" they've suddenly (after 14 years) got themselves so worked up about.
I've a feeling that further rules will be introduced by April to disallow the stockpiling or casual sale of goods the trader does not immediately use or need.
If not, I wonder if it would be OK if traders form a sort of unofficial "club" and simply pass the same goods to each other round and round in circles. Surely they won't let us get away with that one.
Advertising in hard copy media presumably qualifies given that you can physically touch the ad.
Also, I wonder if buying a laptop once a year would work if you dispose of it within 12 months. Terrible waste of money of course, but I suppose it might stimulate the economy.
There are so many different ways to get around this, if you are willing to take on the hassle of implementing them. Workable rules to block them are next to impossible to draft. How much stationery constitutes "stock-piling"? What would qualify sale of goods as casual? We already resell software licences, why not stationery.
Won't hold my breath for an attack of sense on this one though.
I’m sorry but this article just shows what is wrong with our system today. All HMRC has to do is to change the %s and do away with the added complexity they wish to introduce. Yes, there will be winners and losers (the losers can opt out of the scheme) but the whole idea behind the flat rate scheme was to make it simpler for the smaller business to operate VAT. The stupidity of it all!
I wouldn’t advise my client in detail right now as we don’t know what further measures will be announced.
Currently I am advising ALL my 12% VAT clients that it is very likely they will be able to carry on in 12% VAT, albeit with some system changes needed and a little bit less profit to make from the scheme.
Personally I would much sooner HMRC just took the Numpty Department off the case and redefined the sectors properly.
FFS "Enginner 14.5%" How hard can it effing be???
Mr Mischief.....
Currently I am advising ALL my 12% VAT clients that it is very likely they will be able to carry on in 12% VAT, albeit with some system changes needed and a little bit less profit to make from the scheme.
are you sure.?..how...are they all buying lots of goods?
share..... dont just put a comment on like that :)
Well there are all sorts of options set out in this article, Tom. Currently my clients on FRS make a profit of between £3k and £10k per year. They all already spend a bit on "goods" for example. So spend £1k to preserve a £10k profit, no-brainer.
Where they exclude food and drink from the 2%, presumably this is just eg, food and drink for consumption by employees. If you run a B&B, surely money spent on tea, coffee, biscuits, breakfast items can count towards the 2%?
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 puzzles me is that the gov.uk website says there will be an 8 week consultation period for businesses to provide feedback but there is no detail on process/contact info, which is odd. 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 today 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.
"Can anyone also advise why only "goods" are allowed in the limited cost trader calculation?"
I imagine it is just that the companies that they consider to be abusing the FRS tend to be service providers, with very few purchases of goods, so they have designed a test to catch such companies, without any proper consideration of whether it will catch other businesses.
Gareth. No need to think out the reasoning too hard.
The Numpty Department is running the show. Once you accept the existence of a large Numpty Department at the heart of HMRC, lots of things which otherwise appear totally bonkers suddenly make total sense.
Does anyone think, given that the change was not consulted upon in advance, that there is a chance of modification in the last Spring Budget.
In the event that the changes are not modified, the decision to leave the FRS has to be communicated by snailmail to HMRC Grimsby. Does anyone know what the time window is for doing this - e.g. to leave VAT FRS w.e.f. 01.04.2017? Presumably it is the date that you write your letter and post it that counts, not when HMRC get around to opening their mail.
You can exit the FRS any time you like. You don't need to wait for the end of the quarter. In fact, you can even back-date it so long as you haven't filed the VAT return yet, although best to notify them in advance.
If we suspect that software in a manual guise would be considered 'goods' there's easy scope for the accountant to charge their client for a USB memory stick with an excel bookkeeping spreadsheet template.
Only just got to looking at the detail of this, thanks to worse than usual tax return deadline madness. Businesses with low input on "goods" will have to use the 16.5% flat rate. I have many clients in the entertainment business who use agents to find work. These typically charge commission of 10-15% plus VAT. My clients are not 'limited cost' in the general sense but will be severely disadvantaged by this ruling, unless they withdraw from FRS.
Secondary Buying and Selling Trade won't work as the goods can't be counted as this is not the main trade. See HMRC's calculator which specifically excludes goods bought and sold which are not part of the main trade, shame though!
https://www.tax.service.gov.uk/check-your-vat-flat-rate/cost-of-goods